When does a rental loss arise?
A rental loss arises when total allowable expenses (excluding mortgage interest) exceed total rental income across all UK residential lettings. All lettings are pooled into a single UK property business, so a loss on one property offsets a profit on another before any carry-forward.
The ring-fence, losses cannot offset other income
- Property income losses cannot be offset against employment income, pension income, dividends, or savings interest
- No carry-back to prior years
- HMRC treats residential letting as an investment activity, not a trade, hence the ring-fence
- Exception: furnished holiday let (FHL) losses can in some circumstances offset general income, a key advantage of FHL status
Carry-forward rules
- Losses carry forward automatically, no election needed
- No time limit: a loss made in 2022�23 is still usable in 2030�31
- Mandatory offset: when profits arise, the carried-forward loss must be applied
- Cessation risk: permanently stopping all letting causes unused losses to lapse, there is no terminal loss relief for property income
Section 24 interaction with losses
Mortgage interest is not included in the loss calculation (it is excluded by Section 24). This means losses can only arise from non-finance expenses exceeding income. Separately, unused finance cost relief (the 20% credit) that cannot be used in the current year carries forward in Box 46 of SA105, but it is a separate carry-forward from the property income loss in Box 44.
Property income losses (Box 44) and unused finance cost relief (Box 46) are separate figures on SA105 and do not interact with each other. Keep a clear record of each.
Reporting losses on SA105
| SA105 Box | What to enter |
|---|---|
| Box 43 | Adjusted profit or loss for the year |
| Box 44 | Property income loss to carry forward |
| Box 45 | Total residential finance costs (mortgage interest) |
| Box 46 | Unused finance costs brought forward from prior year |