How To Handle Property Losses & Their Related Tax Concerns

There have been numerous changes in recent years that have impacted the profitability of let property for landlords. As well as the changes to the tax treatment of mortgage interest, rises in interest rates and increasing supply chain prices have impacted landlords to the extent of reducing profits and or creating losses.

The prevailing view from Economists is that interest rates will come down in the short to mid-term and inflation will also reduce significantly. If the predictions of Economists are to be believed, the current loss position being experienced by some landlords will hopefully be temporary. If loss-making landlords are to return to profit, it would seem an opportune time to consider the tax treatment of losses on let property. Particularly as current losses will be of benefit going forward. A clear understanding of how losses can be used may be sufficient to persuade some landlords to hold on for better times.

The starting point is to stress that different types of letting need to be identified when considering losses:

• UK residential property
• Furnished Holiday 
• Other UK property – (Commercial Property)
• Overseas property 

In the case of UK residential property, where the annual result is a loss ( involving one or more properties of the same category) the loss can be relieved against future profits of the UK residential property. Where the loss includes capital allowances there is the possibility to offset the loss against total income of the current year or the following year. In the case of the latter, this type of loss will only arise in quite limited circumstances and also will be subject to the cap on income tax deductions. So if in the tax year 2023/24 there is a loss of £5,000 this can be carried forward until fully utilised. If a part of that loss arose from capital allowances, that part of the loss can be relieved against other income of 2023/24 or 2024/25. In the event, the property letting ceases any unutilised losses will be lost.

Losses in a furnished holiday letting business can only be carried forward for relief against future income from the furnished holiday letting. In this regard, UK and non-UK activities are treated separately.

Losses arising from Other UK properties are set off against similar property lets in the same period and also if relevant against residential property letting. Similarly, any unused losses are carried forward to utilise against Other property lettings and or residential lettings in future years.  

Overseas property lettings need to be identified into categories in the same way are UK lettings, see above. As part of this exercise furnished holiday lets in the European Economic Area are treated as a separate business. The set-off and carry forward of losses then follow the same methodology of set-off as the UK lettings.

When the economic stresses reduce for Landlords and profits return,  the availability of losses carried forward from these troubled times will undoubtedly provide a welcome reduction in tax burden.

If readers are unsure as to what losses may be available in their circumstances and how they might be utilised please get in touch for an initial discussion.

If you have any questions about property losses please contact UK Landlord Tax on 01902 711370 or email enquiries@uklandlordtax.co.uk

We hope you found this article informative, if you found this article useful then you may also enjoy using the Welsh Stamp Duty Calculator or all about rental income tax in the UK next.

Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG