Losses: setting losses against future profits
You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.
ITA07/Chapter 4 Part 4
The general rule is that any rental business loss is automatically carried forward and set off against rental business profits of the following year (ITA07/S118 and S119).
Except in the limited circumstances in which they can be set against general income of the same year, property business losses can only be carried forward against losses of the same property business and can’t be carried forward to use against general income in any later year.
No special claim is required and, if appropriate, the customer must deduct any losses brought forward from the previous year when calculating their rental business profit for the current year.
The property 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 (ITA07/S119).
If the customer claims set-off against general income for part of the loss attributable to excess capital allowances, or agricultural expenses the amount carried forward is correspondingly reduced.
But property business losses can only be set off against profits from the same property business. They can’t be carried forward after the property business ceases. Where, after an interval, the customer starts a new property business they can’t deduct losses that arose from their old property 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
Xiang carries on a UK property business. The results of her letting for 2011-12 to 2014-15 are:
|Tax year||Profit or loss|
Xiang’s UK property business position for these years is: Xiang has no excess capital allowances or agricultural expenses for any of these years and therefore can’t make any claims for relief of these losses against general income of the same year.
|Tax year||Chargeable figure||Loss carried forward calculation|
|2011-12||no profit chargeable||loss carried forward £5,000|
|2012-13||no profit chargeable - profit £3,000 less loss brought forward £3,000||balance of loss carried forward (£5,000 less £3,000) = £2,000|
|2013-14||no profit chargeable||loss carried foward £3,000 (loss for year £1,000 + loss brought forward £2,000)|
|2014-15||£5,000 profit chargeable - profit £8,000 less loss brought forward £3,000|
Carry forward against the same property business only
ITA07/S117 and S118 refer to a deduction from the profits of ‘the business’ for subsequent tax years. Therefore losses arising in one property business cannot be carried forward against:
- Profits of another rental business which the customer has in a different capacity. For example, if a customer 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 property 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.
- Property businesses which are treated as separate by statute:
- A UK property business and an overseas property business are treated as separate property businesses
- A loss arising to an FHL business may only be used against profits of the same FHL business.