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HMRC internal manual

Property Income Manual

Losses: set against future profits (IT)


The general rule is that any rental business loss is automatically carried forward and set off against rental business profits of the following year. See:

  • ICTA88/S379A (1) for the years 1995-96 to 2006-07, and
  • ITA07/S118 and S119 for 2007-08 onwards.

Rental business losses can’t be carried forward against any of the taxpayer’s other income. No special claim is required and, if appropriate, the taxpayer must deduct any losses brought forward from the previous year when calculating their rental business profit for the current year.

The rental business profit of the current year may be too small to give relief for all the loss of the previous year. In that case the unused part of the loss is carried forward to the next year; and so on indefinitely until relief can be given. Similarly, if there is also a loss in the current year, you add the loss brought forward to it and carry the combined sum forward to the following year; and so on until the loss is relieved.

If the taxpayer claims set-off against general income for part of the loss attributable to excess capital allowances, agricultural expenses or furnished holiday lettings, the amount carried forward is correspondingly reduced.

But rental business losses can only be set off against profits from the same rental business. They can’t be carried forward after the rental business has stopped. Where, after an interval, the taxpayer starts a new rental business they can’t deduct losses from their old rental business. Whether a rental business has stopped and a new business started depends on the circumstances of each case (see PIM2500).

Example of losses carried forward

Clarissa is taxable under Schedule A on her letting income. The results of her letting for 2001-02 to 2004-05 are:

2001-02 loss   £5,000
2002-03 profit £3,000
2003-04 loss   £1,000
2004-05 profit £8,000

Clarissa has no excess capital allowances or agricultural expenses for any of these years (and can’t therefore make any claims for sideways relief against general income).

Clarissa’s Schedule A position for these years is:

2001-02 no profit chargeable loss carried forward £5,000
2002-03 no profit chargeable - profit £3,000 less loss brought forward £3,000 balance of loss carried forward (£5,000 less £3,000) = £2,000
2003-04 no profit chargeable loss carried forward £3,000 (loss for the year £1,000 + loss brought forward £2,000)
2004-05 £5,000 profit chargeable - profit £8,000 less loss brought forward £3,000  


For 1995-96 to 2004-05 Schedule A IT losses are governed by ICTA88/S379A.

For 2005-06 and 2006-07 ICTA88/S379A continues to apply but references to Schedule A losses are replaced by references to losses from a UK property business.

For 2007-08 onwards the property business IT loss provisions are at ITA07/S117 onwards.

Carry forward against the same rental business only

ICTA88/S379A (1)(a) refers to carry forward against the profits or gains of ‘that business’ and ITA07/S117 and s118 refer to a deduction from the profits of ‘the business’ for subsequent tax years. Therefore the losses cannot be carried forward against:

  • Profits of another rental business which the taxpayer has in a different capacity,

    • so, for example, if a taxpayer has let property of his own and is a member of a partnership which has rental income, losses of his personal rental business cannot be set against his share of the partnership’s rental income.
  • Profits of a current rental business started after the one in which the loss arose has ceased,

    • for guidance on how to decide whether the same rental business has resumed after a pause, or whether a new one has begun, see PIM2500.