Stolen rent

I rent properties and prepare accounts on the traditional (Not cash) basis. I have used an estate agent to collect some of the rents. The tenants have paid the rents to the agent but he has not paid them over to me and has now been arrested and charged with theft etc. I have been told : 1) that as the tenants have paid the rent I have to include it as income in my accounts as if it had been paid to me. 2) The amount stolen by the agent does not count as a bad debt (as it is not a bad debt from a tenant) even though there is no chance of recovering the money. I therefore have to pay tax on the rent that was stolen and not received by me, which does not seem fair. Is this correct ??

Hi SallyB,
I agree that you have to declare the rental income and Use of trading income rules: splitting receipts and expenses between years - PIM1101 confirms this.  
The only other thing I can find in the Property Income Manual is Deductions: main types of expense: bad and doubtful debts-PIM2072 about bad debts and them becoming irrecoverable.  
However that guidance does state this may only be allowable after you have taken all reasonable steps to recover the debt.  I would say in this case you must pursue criminal proceedings against the estate agent to recover the money and it would only be after you have exhausted those avenues and can provide evidence of the action he you have taken that we may consider allowing relief for a bad debt if you have not been able to recover the money. So ultimately you have to include this rental income initially.
Thank you.