The law says that rental property losses can be carried forward and automatically used to reduce later profits. However, HMRC is likely to ask you for evidence of the loss you are claiming.
Do you own a property that you have let out for several years but made a loss, so you didn’t declare it to HMRC?
Is that property now making you a profit, but you’ve been advised that because you didn’t declare the previous years of losses it will be too late to use them?
Declare or not?
There is often confusion surrounding when you’re required to declare property rental income to HMRC. You may have heard different opinions when it comes to reporting a loss-making property business. The correct answer is that by itself a loss-making property business does not trigger a requirement to report anything to HMRC. However, if you’re already in self-assessment you must report all your income to HMRC, including receipts (and expenses) relating to a loss-making property business.
Is there a loss for tax purposes?
If you think you have a made a loss on your property rental business, it is advisable to speak to one of our team to review your calculations as not all expenses associated with rental income are tax deductible. There are common misconceptions and mistakes which could mean that you’re not declaring anything when you should be. For example, its sometimes assumed that mortgage payments are a deductible expense when it’s only the interest element of your repayments that are.
Loss making – what next?
Claiming loss relief, can be subject to time limits, but these are too easily misunderstood. You may have heard that there is a time limit for claiming loss relief of 2 years and you can only go back four years to claim expenses/losses on a tax return. Fortunately, these rules do not apply to losses from a property rental business. Even if you haven’t reported them to HMRC they can be carried forward indefinitely and taken off later profits.
Be aware that HMRC is likely to ask questions to check that your figures are accurate. Make sure you keep all records, including receipts for all years, even those you didn’t report anything to HMRC.
Please do not hesitate you get in touch with us should you have any questions either on (01509) 816150 or through our website.