If there is an overall income tax loss on an individual’s (not a company’s) continuing property portfolio over a tax year and that loss has been created by excess capital allowances claimed, then that loss can be relieved by being offset against the owner’s other (‘general’) income for the same and/or next tax year. Otherwise the loss is automatically carried forward and set against future profits of the same UK property business.
The loss would best be used against other income for the same and/or next tax year if the taxpayer had taxable income in excess of the personal allowance.
If other income exceeds the personal allowance, better tax planning would be to carry forward the loss, so as not to waste the loss against income already covered by the personal allowance – remember also that capital allowances can be disclaimed (restricted) to suit. The loss can be set against the current year, or the following year, or both if large enough.
Any unutilised loss is carried forward for offset against future rental profits.
James owns a portfolio of four properties. He purchased capital assets and claimed Annual Investment Allowance (see Tip 32 for detail) producing an overall loss of £10,000.
If he is a taxpayer with income in excess of the personal allowance he can claim for the loss to be offset, thereby reducing his taxable income resulting in a possible tax refund.
If he has no other income the loss should be carried forward and offset against profits of the future period, if any.
This is a sample tip taken from our 112 page guide: