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If there is an overall income tax loss made for a tax year, that 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).

•    Losses from UK furnished holiday lettings (FHLs) can only be carried forward and set against profits made on other UK FHL properties. The losses cannot be deducted from profits made on other lettings (including profits made on an overseas FHL business).

•    If the loss arises on cessation, relief may be possible as being set against the owners’ general income, or against capital gains made in certain circumstances.

•    The above rules apply for income tax purposes. For companies, property losses may normally be set against total profits of that or following accounting periods, or ’group relieved’.

Example:
Ben owns a portfolio of four properties (none of which is a FHL). Together a loss was incurred for the year 2012/13 but a profit for the year 2013/2014. His other income makes him a basic rate taxpayer.
Calculation:
2012/13   Loss carried forward        £(20,000)
2013/14   Profit                                    £10,000  
Loss carried forward to 2014/15     £(10,000)

Nil tax due on lettings for either year 2012/13 or 2013/14.