This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Property Income Manual

Property allowance: contents: examples: When it can be beneficial for individuals to elect for full relief not to apply

In some situations it may be more beneficial for an individual to make an election for Full Relief not to apply by completing a tax return to report their income and expenses, (guidance is included in the SA Return Notes). This is likely to be the case where the expenses of a property business exceed receipts resulting in a significant loss . These losses could be used against future profits.

Suppose Xavier has the following results for two tax years:

2017-18

Receipts of UK property business: £1,000

Expenses of UK property business: £5,000

Therefore, UK property business losses for 2017-18: £4,000

2018-19

Receipts of UK property business: £8,000

Expenses of UK property business: £4,000

Therefore, UK property business profit of £4,000

 

If no election was made to disapply Full Relief for 2017-18, Xavier would have paid no Income Tax on his UK property business for that year as £1,000 of receipts would not be brought into account. However, £5,000 of expenses would also not be brought into account and the profit of the business would be treated as nil. In 2018-19, Xavier made profits of £4,000. He would then pay Income Tax on those profits of £4,000 (assuming no election for Partial Relief was made).

If however, Xavier had made an election to disapply Full Relief for 2017-18, he would have accrued losses of £4,000 to carry forward. He would then have been able to set these losses against his UK property business profits in the 2018-19 tax year - reducing them to nil.