Have you missed out on tax loss relief on property?
Tax loss relief on property can be confusing. This article should help you understand if you have missed out on tax loss relief on property.
You have let out a property for several years, but as it was making a loss you didn’t declare it to HMRC.
It is now making a profit, and you are worried that because you didn’t declare the losses in previous years, it’s too late to use them.
Is this correct?
The rules on tax loss relief on property
There’s often confusion surrounding when you’re required to declare property rental income to HMRC and there are differing opinions on whether you need to report a rental business if it’s making a loss.
The correct answer is that by itself a loss-making property business does not trigger a requirement to report anything to HMRC.
However, if you’re already in self-assessment you must report all of your income to HMRC including receipts and expenses relating to a loss making property business.
If the rent you receive doesn’t exceed £1,000, you don’t need to enter details of income and outgoings on your tax return. You need only claim the property allowance by ticking the appropriate box – the income is then exempt.
You can choose not to claim the property allowance. One reason for doing so is where your tax deductible expenses exceed the rent you receive. You can then carry forward the loss to reduce future profits.
I’ve made a loss on property, can I get tax relief?
Where you think you’ve made a loss on your property rental business, it’s advisable to ask an accountant to review your calculations as not all expenses associated with rental income are tax deductible.
There are common misconceptions and mistakes which could mean that you’re not declaring anything to HMRC when you should be.
For example, it’s sometimes assumed that mortgage payments are a deductible expense when actually it’s only the interest element of your repayments that are.
Even then only 50% of interest (25% from 6 April 2019) can be claimed.
So while it may seem that the expenses outweigh income, by the time adjustments are made to remove the capital element of a mortgage repayment and other non-tax-deductible costs, there’s a much smaller loss or a profit which out to have been reported to HMRC.
If there is still a loss, there are strict rules on how you can use it to reduce later profits.
Claiming loss relief can be subject to time limits, but these rules don’t apply to losses from a property rental business. Even if you haven’t report them to HMRC they can be carried forward indefinitely and deducted from later profits.
When claiming carried forward losses on a tax return include a note in the additional information explaining your claim and be aware that HMRC is likely to ask questions to check that your figures are accurate.
Make sure you keep receipts etc for all years including those where you didn’t report anything to HMRC.
If you need further advice on this complex issue, get in touch and we’ll talk through your situation with you.