Can I carry-forward rental income losses?

[mitchg]

I have made consistent losses on my three rental properties. I sold one of them recently; can I still carry forward the losses I made on this property to be used against any future profits the other two might make? I'd be very grateful for any answers.

[TaxationPete]

Yes you can. The Profit/Loss accountability is against your rental business not each property. Remember to apportion your mortgage interest correctly for the period. Regards Peter

[mitchg]

Thanks. The reason I asked is that the 'taxman' is telling me I can't bring the losses forward as I have sold the property; I had a strong feeling he was wrong and this isn't the first time I have been completely misled by them; they told me I wasn't allowed to claim mortgage arrangement fees as an expense; this is a complete lie!

[TaxationPete]

I assumed that the losses were of a rental nature. Are you sure the taxman did not think the loss was due to selling the house. Regards Peter

[mitchg]

He definately knows the losses are rental losses. I made a profit on the sale of the property which I assume will come under 'capital gains'. His actual words to me were "Please note that as this property is no longer let the loss arising cannot be carried forward and offset against future profits."

[TaxationPete]

He is wrong. The loss is accountable up to the date of the sale when the property left your rental business. Yes the sale profit is a CGT issue. Regards Peter

[wotnot]

I see the confusion here and I too am confused.

So lets say you have 5 properties that each make a loss of £1000 = £5000 loss in that year. You then sell one at the end of the year and from what you have said the IR is saying you cannot carry the '£1000' loss for that property forward? Interesting one. Anyone know?

[TaxationPete]

The gain or loss is on your residential rental business. If you shed a property as it is a serious loss maker and you genuinely only claim the loss the property made during the period you owned it then it is a rental business loss. You can not claim for any perceived losses for the rest of the accounting year as you do not own it anymore. Regards Peter

[tenant29]

I see the confusion here and I too am confused.

So lets say you have 5 properties that each make a loss of £1000 = £5000 loss in that year. You then sell one at the end of the year and from what you have said the IR is saying you cannot carry the '£1000' loss for that property forward? Interesting one. Anyone know?


It may be easier to understand if you actually completed your own tax return as there are blocks in the tax return to enter previous year loss figure -

Using your example of 5 properties each making a loss of 1K.

Yr 1 tax return - you would show a loss on rental income of 5k.

Yr 2 tax return - you would show a loss on rental income of 5K
plus losses from previous year of 5K = 10K total loss

If you sold one property during yr 3 ,

Yr 3 tax return - you would show loss of rental income say 4.3K
plus losses from previous years of 10K = 14.3K total loss.

But if the annual loss is offset against earnings income or other trading income source , then you may not have any loss to carry forward.

( Is this correct , Pete ? )

[TaxationPete]

Yes but remember that rental icome/loss is not accountable against PAYE type income, you can not offset losses against your 'Normal Job' I now wonder if that is where the Tax Man was coming from. A lot of new B2L landlords make and declare a loss in the first year and carry that across to a more profitable one. Regards Peter

[mitchg]

Can I offset any of the capital gain I made with my partly unused 'personal allowance'?

[TaxationPete]

You can only use your annual capital gain allowance of £9,200 ( FY 07/08 ) after deducing aquisitionand disposal, sales and legal fees and any Capital Enhancement costs that aply. Regards Peter

[bertiebj]

Not sure if it was touched upon ...
... but rental losses can be carried forward against THE SAME BUSINESS. This does not need to be the same property but there will be indicators that go in favour of same business, and indicators that go against this.

In favour are likely to be:
-little time between selling 1 property and buying another
-how similar the properties and way they are let
-funds from sale invested in new property

Things against are likely to be
-reverse of all of the above
-large b/fwd loss being suddenly applied against large profit on new property
-whether old property was let with an intent to generate profit

You get the picture...

I suspect the revenue are taking the backstop position of if different properties and not rented at same time, they are different businesses. You should put forward an arguement that they are indeed the same business.

Good luck.

[Phlash]

Congratulations on the first post.

Why you chose a thread that is coming up to its third year anniversary I do not know!

But welcome!

[Telometer]

Things against are likely to be

-large b/fwd loss being suddenly applied against large profit on new property


That is not correct. A person (operating on his own) may only have one rental business and provided there is no cessation any brought forward rental profits may be offset against any rental income. HMRC's view is that in the case of a rental business, generally a gap of up to three years between properties does not constitute cessation. (Personally I think they would have a good chance of reducing that period, under current legislation, but they have shown no desire so to do.)