If you’re a landlord, it’s important to understand how losses from your property rental business can be used for tax purposes. Unfortunately, the options for utilising these losses are somewhat limited, and the rules vary depending on whether you’re an unincorporated landlord or running your business through a company.
Let’s break it down.
Unincorporated Landlords: How Losses Are Handled
If you’re an unincorporated landlord, the general rule is that any losses from your property rental business must be carried forward and offset against the first available profits from the same property business in future years. This happens automatically—there’s no need to make a formal claim.
Example 1: Carrying Forward Losses
Kimberly lets out a property on a long-term residential basis. In the 2023/24 tax year, she makes a loss of £1,200. In 2024/25, she makes a profit of £4,600.
The loss from 2023/24 is carried forward and offset against the 2024/25 profit, reducing her taxable profit for 2024/25 to £3,400.
If you own more than one property within the same business, any losses on one property will automatically be offset against profits from your other properties. You don’t need to calculate each property’s profits and losses separately.
Example 2: Offsetting Losses Across Multiple Properties
Michael has three rental properties, all forming part of the same property business. In 2024/25, he makes a loss of £6,000 on one property, but a profit of £4,300 on the second and £7,100 on the third.
His overall profit for the business is £5,400, with the loss from the first property automatically reducing his total profits.
Can You Offset Losses from Different Property Businesses?
If you run more than one property business, such as a Furnished Holiday Let (FHL) alongside a regular rental property, the losses from one business cannot be used to offset profits from another. For example, a loss in 2023/24 from your FHL business cannot be set against a profit from your residential rental business.
However, with the FHL regime ending on 6 April 2025, any unused losses from the FHL business as of 5 April 2025 can be used against profits from the combined property business in future years.
What Happens If the Business Ceases?
If you decide to close your property rental business, any unused losses will be lost, even if you start a new rental business at a later date. Be cautious if there’s a temporary pause in your letting activity—tax relief on losses will only be available if the same business continues after the break, rather than a new one starting up.
Corporate Landlords: How Losses Work
For landlords operating their property business through a company, the rules are slightly different. Any losses must first be offset against the company’s total profits for the accounting period. If there are still losses left, they can be carried forward and set against future profits of the same property business.
Just like with unincorporated landlords, if the company’s property business ceases, any unrelieved losses at the date of cessation will be lost.
Need Help Managing Property Losses?
Understanding how to correctly use losses in your property rental business can make a big difference to your tax bill. If you need help navigating these rules or maximising your tax reliefs, get in touch with Jon and the team today. We’ll guide you through the best options for your business and help you make the most of available tax reliefs.
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