Tax Questions: Handling Rental Losses in a Mixed Property Portfolio

Buy to Let

For those of you with mixed property portfolios with some properties making a loss and others doing well as lets, what’s the most efficient way to handle the losses? It’s been a turbulent couple of years and this may have impacted your business negatively. It’s important you use the right tax rules to make the most of the situation.

Tax rules for rental business losses

The rule of thumb is losses made from letting UK properties automatically reduces profits on other properties you own in the same year. The loss is carried forward to offset aggregate property business profits of later years. While this is good news for those wishing to increase tax efficiency for loss relief, there are some exceptions to this rule.

Holiday let properties

Normal loss rules don’t apply to furnished holiday lets and losses made from these types of property businesses can only be set against profits of the same business. This means keeping the records of profits and losses for furnished holiday lets separately from those relating to other property rentals in your portfolio when calculating tax losses.

Other types of property rental

As only profits and losses from UK property rentals other than furnished holiday lets must be aggregated if there’s an overall loss, it’s necessary to consider how relief is provided.

For property rental businesses it can only be carried forward and used to reduce future aggregate profits. An exception is as follows. Relief for losses can be claimed against tax paid on non-property business income where they result from either capital allowances, HMRC’s system allowing tax deductions for capital expenditure (equipment, fixtures, fittings), or the letting of agricultural property. Where overall a loss results from capital allowances or agricultural letting, you can claim tax relief against tax on your other income of either the same year or the next.

Let’s Talk

For help calculating your own unique position on your property portfolio if you have made some losses this year, talk to our team of dedicated tax specialists at LHP. With offices across South Wales and over 86 years’ trading experience, you are in safe hands.

Let’s Talk.

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