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I wonder if anyone can help me please. I own two properties - one which I rent to my mum and make an annual loss on and one which I bought recently as a first stab at investing / developing and which I am fortunate enough to look like making a significant profit on this year (>50K). Am I allowed to offset the losses of the rental property against the gains of the investment one?

Many thanks

No

Losses to connected persons can only be offset against same connected persons future profits.

Sorry - dont really understand the reply. Who is the 'connected person' in this instant? If its me, arent the proceeds from the development property my profit? If its my mum, does that mean I should keep a record of all losses over these initial years in case I ever turn a profit in future years? (I guess I'll be keeping records anyway via tax returns?)

It is not clear from your question whether you are talking of capital or revenue profits and losses.

If revenue (i.e. rental income less expenses) then you cannot set the loss you make on letting the property to your mother against the profit you make on the commercial letting for income tax purposes.

If capital (i.e. arising on a sale of the properties) then if you sell in the open market in the same tax year then you can set a loss on one property against the profit on another for CGT purposes.

There's more to it than the above but hopefully this will help you to identify what it is you want to know.

Incidentally - you and your mother are connected persons for tax purposes.

Also - you cannot set revenue losses against capital gains or vice versa (in these particular circustances).

Hi, sorry I hadnt been clear, the property my mum is in is loss making on the rent she pays me (revenue loss). The other property has never been nor will be let out , its a straightforward buy, do up, sell on (well, a bit more complicated than that since I bought it as one property but have had an offer on part of the garden which I am accepting before putting the remainder of the property / plot) back on the market. )

This I assume is a capital profit. Therefore hashman, from your second comment I assume I can not link the profit and loss?

BTW, is there anything I should know about selling the garden plot? I bought the whole thing for £235K; am selling half the garden for £30K and putting the rest of the garden / property back on the market at £265K. I assume I will get CGT-ed on all 60K profit (minus allowable fees and expenses).

Many thanks

It is very likely that your profit on the disposal of the 'other property' will be subject to income tax not CGT as a trading-type transaction. But you still won't be able to use the losses made on your mother's property - because it is being let uncommercially.

help, I think I'm confusing you here - really sorry. The development property is a one-off, my husband and I both work and just wanted to 'dabble'- we're not intending to become property developers!

BTW does 'uncommercially' mean not through a company? Which is true. If it means not at market value then that's not true. Am i just confusing matters even more here? If you can give me any contact details, I'll happily pay for more detailed advice if you think I need it!

A single transaction can be 'an adventure in the nature of trade'. From what you have said it would appear that you will fall into the net. But take professional advice to check to see whether there is any scope for avoiding this pitfall.

Letting to a relative at below market rates is uncommercial - and the fact that you make losses each year confirms this. The Revenue treat such lettings as giving rise to neither a profit nor a loss for tax purposes.

I'm afraid that I am not contactable but there are many others out there who will be able to help you. I would strongly recommend that you do seek professional advice as you appear to be entering into something without fully appreciating the possible consequences.

Rental losses, even if done at market value, cannot be set against other income or capital profits - unless from Furnished Holiday lets.

Unfortunately, a "one off" property development is still liable to income tax, and not CGT. However, unless you buy the intended property very cheaply (and avoid having to use any finance), you may struggle to make a profit in the current UK residential property market.