Losses from a property business are calculated in the same way as losses from a trade.
The loss on one property in a portfolio is automatically offset against profits made on any other properties in the same portfolio for the same period.
Therefore profits and losses of all UK properties are ‘pooled’ together. As profits and losses of any overseas properties are kept separate, two distinct and separate ‘pools’ are created should there be both UK and foreign properties in a portfolio.
Losses on furnished holiday lettings (FHLs) are also kept separate and cannot be offset against either other UK rental profits or profits made on foreign properties. They too are ‘pooled’: a UK FHL property ‘pool’ and a separate overseas FHL ‘pool’.
Example:
Joan owns two properties – one in France and one in London.
She lets out both properties in 2013/14 – the London one for the full year but the one in France for only two months over the summer. She makes a net profit on the property in London but a net loss on the one in France. Neither constitutes a FHL.
The loss on the French property cannot be offset against the profits made on the London property and must be kept separate; however, the loss can be carried forward and deducted against any profit made in future lettings of the French property – or indeed any other overseas non-FHL properties she might subsequently acquire.
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