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If there is an overall income tax loss made for a tax year, then unless the loss arises in relation to certain capital allowances, the loss is generally relieved as follows:

•    Carried forward and set against profits made in future years on properties in the same UK property business (or if overseas property, against the same overseas property business).
•    If the loss arises on or after cessation, relief may be set against the owners’ general income or against capital gains made, in certain circumstances.
•    Losses from UK furnished holiday lettings (FHLs) can only be carried forward and set against profits made on other UK FHL properties. When a property ceases to be an FHL, any unclaimed losses are wasted. Should the property be continued to be let, but as unfurnished, then the income and expenditure will be pooled with any other non-furnished lettings and taxed accordingly.

Example:
Ben owns a portfolio of four properties (none of which is a furnished holiday let). Together an overall loss was incurred for the year 2014/15 but a profit was made for the year 2015/16.

Ben’s other income makes him a basic rate taxpayer.

Calculation:
2014/15   Loss carried forward         £(20,000)
2015/16   Profit                                  £ 10,000
Loss carried forward to 2016/17       £(10,000)
 
Nil tax due on lettings for either years 2014/15 or 2015/16.