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Where Taxpayers and Advisers Meet

Brought forward losses from foreign property

LanceLink
Posts:1
Joined:Tue May 22, 2018 11:34 am
Brought forward losses from foreign property

Postby LanceLink » Tue May 22, 2018 12:06 pm

Hi All,

I've had a sale and leaseback property in the Alps for 6 years. In that time, the mortgage interest payments have exceeded the rent from the lessee every year to date, and as a result I have not recorded anything on my SA tax return in respect of the property, as there has been no net income.

In the current year, through a combination of a reducing mortgage balance and additional rent, I expect to start making an income from this investment every year.

Three questions:

1) How do I report this income in the first year that the notional foreign property business is making a profit in a way to get the benefit of the previous years' losses brought forward until they are used up?

2) How many years losses can I bring forward?

3) Other than interest costs, service charges, property taxes and professional fees, are there any other allowances that I can use for wear and tear of the assets (it is a fully furnished holiday apartment), and are these affected by the fact that the property is on a long-term lease to a single lessee?

Thanks!

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Brought forward losses from foreign property

Postby pawncob » Wed May 23, 2018 12:32 pm

You should have claimed the loss each year. You can probably claim it retrospectively (for 4 years anyway) by writing to HMRC and explaining the position, but be prepared for questions.
With a pinch of salt take what I say, but don't exceed your RDA

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Brought forward losses from foreign property

Postby bd6759 » Wed May 23, 2018 10:47 pm

There is nothing is s118 ITA that requires losses to be claimed. The rule is that losses are carried forward and must be deducted from subsequent profits. No claim is necessary.

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Brought forward losses from foreign property

Postby pawncob » Thu May 24, 2018 11:07 am

But HMRC state that Losses should be reported, which constitutes the claim.

"If HMRC ask you to send in a tax return you need to give details of your rental income and expenses even if you have made a loss in the year".
With a pinch of salt take what I say, but don't exceed your RDA

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Brought forward losses from foreign property

Postby maths » Thu May 24, 2018 12:33 pm

HMRC Manual at PIM4210 states:

"The general rule is that any rental business loss is automatically carried forward and set off against rental business profits of the following year (ITA07/S118 and S119).............

No special claim is required and, if appropriate, the customer must deduct any losses brought forward from the previous year when calculating their rental business profit for the current year."

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Brought forward losses from foreign property

Postby pawncob » Thu May 24, 2018 6:51 pm

The OP already completes a return. Guidance says:
The ultimate answer depends on whether the property owner is already required to complete a self- assessment tax return for some other reason. If you have to complete a self-assessment tax return then you have a duty to include your income from ALL sources on the return, so those completing tax returns already MUST include the income and expenses from any rental properties.


So whilst accepting that the OP doesn't have to make a claim as such, he must notify HMRC.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income#reporting-losses
With a pinch of salt take what I say, but don't exceed your RDA

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Brought forward losses from foreign property

Postby bd6759 » Thu May 24, 2018 11:36 pm

There is no doubt that his returns are not complete, but there can be no penalty because no tax has been lost.

The law trumps HMRC guidance.


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