Rental Business Losses – the overlooked relief

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In the latest UK200Group blog post, Ann Bibby, Tax and Wealth Planning Partner, Ellacotts, discusses how to deal with rental business losses in the most tax-efficient way

Ann Bibby
Scenario: You rent out a commercial property to a company which you own. Last year you incurred so much on replacement fixtures and fittings that the expenditure was greater than the rental income. How do you deal with this loss the most tax-efficient way?

Rental business losses – what are the tax rules?

If as a landlord you carry out repairs to the property which result in expenditure exceeding rents, this counts as a loss for tax purposes.

If you let out more than one property, the loss you make on one UK property reduces the profits on the others for the same year. Any losses left are then carried forward to set against profits in forthcoming years. If you only let one property and it makes a loss, it’s automatically carried forward. However, there are exceptions to these rules.

What are the exceptions?

The main exception that people are aware of is the Furnished Holiday Lets loss rule. The profits and losses for these must be kept separate from those relating to other rental properties.

However, there are far less well known but more advantageous loss relief rules which mainly apply to non-residential property lets. These rules relate to losses from Capital Allowances and general expenses relating to letting agricultural property. These losses may be used to reduce your tax bill on your general income such as income tax paid on salary or dividends.


Sarah rents out three properties; an office, farm land let under an agricultural tenancy and a student house. In 2017/18 the student made a profit of £5,000, the office space a profit of £2,000 less CAs of £10,500 for the cost of a new security system, and the farm land made a loss of £1,500. The losses and profits must be aggregated which produces an overall loss of £5,000 (£5,000 + £2,000 - £10,500 + £1,500).

Sarah’s additional income is a salary and dividends from her company, which operates from the office space and pays her rent. Sarah was a basic rate taxpayer in 2017/2018, but expects to pay higher rate tax in 2018/2019. She therefore claims loss relief of £5,000 for the later year. This will reduce her tax bill by £2,000 (£5,000 x 40%).

Should I carry forward my loss or use it to reduce my other income?

Take a look at how much non-rental income (e.g. your salary) you have in the same year that you make the loss on your rental(s) and work out how much rental plus other earnings you’ll receive in forthcoming years. At Ellacotts our specialist Tax and Wealth Planning team can help you work this out.

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