The general rule is that any rental business loss is automatically carried forward and set off against rental business profits of the following year. See:
Rental business losses can’t be carried forward against
any of the taxpayer’s other income. No special claim is
required and, if appropriate, the taxpayer must deduct any losses
brought forward from the previous year when calculating their
rental business profit for the current year.
The rental business profit of the current year may be too
small to give relief for all the loss of the previous year. In that
case the unused part of the loss is carried forward to the next
year; and so on indefinitely until relief can be given. Similarly,
if there is also a loss in the current year, you add the loss
brought forward to it and carry the combined sum forward to the
following year; and so on until the loss is relieved.
If the taxpayer claims set-off against general income for
part of the loss attributable to excess capital allowances,
agricultural expenses or furnished holiday lettings, the amount
carried forward is correspondingly reduced.
But rental business losses can only be set off against
profits from the same rental business. They can’t be carried
forward after the rental business has stopped. Where, after an
interval, the taxpayer starts a new rental business they
can’t deduct losses from their old rental business. Whether a
rental business has stopped and a new business started depends on
the circumstances of each case (see
PIM2500).
Clarissa is taxable under Schedule A on her letting income. The results of her letting for 2001- 02 to 2004-05 are:
| 2001-02 | loss £5,000 |
| 2002-03 | profit £3,000 |
| 2003-04 | loss £1,000 |
| 2004-05 | profit £8,000 |
Clarissa has no excess capital allowances or agricultural
expenses for any of these years (and can’t therefore make any
claims for sideways relief against general income).
Clarissa’s Schedule A position for these years is:
| 2001-02 | no profit chargeable | loss carried forward £5,000 |
| 2002-03 | no profit chargeable - profit £3,000 less loss brought forward £3,000 | balance of loss carried forward (£5,000 less £3,000) = £2,000 |
| 2003-04 | no profit chargeable | loss carried forward £3,000 (loss for the year £1,000 + loss brought forward £2,000) |
| 2004-05 | £5,000 profit chargeable - profit £8,000 less loss brought forward £3,000 |
|
For 1995-96 to 2004-05 Schedule A IT losses are governed by
ICTA88/S379A.
For 2005-06 and 2006-07 ICTA88/S379A continues to apply but
references to Schedule A losses are replaced by references to
losses from a UK property business.
For 2007-08 onwards the property business IT loss provisions
are at ITA07/S117 onwards.
ICTA88/S379A (1)(a) refers to carry forward against the profits or gains of 'that business' and ITA07/S117 and s118 refer to a deduction from the profits of ‘the business’ for subsequent tax years. Therefore the losses cannot be carried forward against:
