No. 17 · Landlords · ITA 2007 ss118–124
Rental (UK property business) losses
A loss from letting property is normally carried forward automatically against future profits of the same property business. Only the part that comes from capital allowances (or certain agricultural expenses) can be set against your other income — and not if you use the cash basis.
On this page
- All your UK lettings in the same capacity form one property business — a loss on one property is automatically set against profit on another.
- An overall loss is carried forward automatically against future profits of the same business, with no time limit — but it is lost if the business ends.
- UK and overseas lettings are separate businesses; so are lettings you do personally and through a partnership.
- Sideways relief is only for net capital allowances or allowable agricultural expenses, against the loss year or the next year, and not on the cash basis.
One business, one result
GOV.UK explains that if you let more than one property, the profits and losses are added together to give one figure of profit or loss for your property business. A loss on one property is automatically set against profit on another. But:
- overseas lettings are a separate business from UK lettings;
- lettings you do in a different capacity — for example personally and through a partnership — are separate businesses, and HMRC’s manual says a loss in one can’t be used against the other;
- a property let on uncommercial terms (say, at a nominal rent to a relative) can’t create a loss: expenses are only allowed up to the rent from that let.
The main rule: carry forward, automatically
Under sections 118 and 119 of the Income Tax Act 2007, a loss is deducted from the profits of the same property business in the next tax year, then the following years, until it is used up. HMRC’s Property Income Manual says no special claim is needed — you simply deduct the loss brought forward when working out the next year’s profit — and it carries on indefinitely until relief is given.
| 2011-12 loss | minus (£5,000) |
|---|---|
| 2012-13 profit, after using £3,000 of the loss | £0 |
| 2013-14 loss (adds to the £2,000 left) | minus (£1,000) |
| Loss carried into 2014-15 | minus (£3,000) |
| 2014-15 profit | £8,000 |
| 2014-15 taxable profit after the loss | £5,000 |
When letting stops, HMRC’s manual says losses can’t be carried forward after the property business ceases. GOV.UK adds that if you continue the same property business and start renting again within 3 years you may be able to use earlier losses — but that this depends on the circumstances.
Setting part of a loss against other income
Section 120 allows property loss relief against general income — but only for the part of the loss that has a "capital allowances connection" (capital allowances exceeding balancing charges) or that comes from allowable agricultural expenses on an agricultural estate. The structures and buildings allowance is ignored for this (section 123(2A)). For most residential landlords, this won’t apply.
Points to know:
- The claim is against your income of the loss year or the next year — not the year before. HMRC’s manual says property losses can’t be carried back.
- It’s all or nothing — no partial claims, even if that wastes your Personal Allowance.
- It is within the cap on income tax reliefs (£50,000 or 25% of adjusted total income).
- It isn’t available on the cash basis. Section 127BA says no property loss relief against general income may be given where profits are worked out on the cash basis, which is the default for most individual landlords with receipts of £150,000 or less.
HMRC’s example (Ali, PIM4228): a £50,000 rental loss includes £28,000 capital allowances, a £26,000 balancing charge and £30,000 of agricultural expenses. He can set £32,000 sideways (£2,000 net capital allowances plus £30,000 agricultural expenses); the other £18,000 is carried forward.
Deadline for sideways relief
Section 124 requires the claim by the first anniversary of the normal filing date for the tax year named in the claim:
| For a 2026/27 loss, claimed against | Claim by |
|---|---|
| 2026/27 income | 31 January 2029 |
| 2027/28 income | 31 January 2030 |
Mortgage interest isn’t a loss
For residential lettings, finance costs such as mortgage interest are not deducted in working out your rental profit or loss. Instead HMRC’s manual explains they give a basic-rate tax reduction, limited by your property profits (after losses brought forward) and your adjusted total income. Any unrelieved amount is carried forward as finance costs, not as a loss. Finance costs for non-residential property are still deductible in full.
Furnished holiday lettings
The furnished holiday lettings regime was abolished from 6 April 2025. Finance Act 2025 (Schedule 5) provides that unused losses from a former FHL business carry into your ordinary UK (or overseas) property business, as long as you carry on that business in 2025-26.
Rent a Room and the £1,000 property allowance
Neither can create a loss. HMRC’s helpsheet HS223 says that if you want to claim a loss on income that would be covered by Rent a Room, you must tell HMRC you want to be taxed on income less expenses — within one year of 31 January after the tax year. The property income allowance can’t be used to create a loss either.
On the return
On the 2025–26 UK property pages (SA105) there are boxes for loss brought forward used against this year’s profits, the adjusted loss for the year, the loss set off against total income ("this will be unusual", as the form says) and the loss to carry forward. See where losses go on your return.
Sources
Checked 4 October 2026 for the 2026/27 tax year. We read these primary sources for this guide:
- Income Tax Act 2007, section 118 (legislation.gov.uk)
- Income Tax Act 2007, section 120 (legislation.gov.uk)
- Income Tax Act 2007, section 123 (legislation.gov.uk)
- Income Tax Act 2007, section 124 (legislation.gov.uk)
- Income Tax Act 2007, section 127BA (legislation.gov.uk)
- HMRC Property Income Manual PIM4205: Losses — overview (gov.uk)
- HMRC Property Income Manual PIM4210: Setting losses against future profits (gov.uk)
- HMRC Property Income Manual PIM4220: Setting losses against general income (gov.uk)
- HMRC Property Income Manual PIM4228: Restriction on sideways relief (gov.uk)
- HMRC Property Income Manual PIM2058: Finance cost restriction (gov.uk)
- GOV.UK: Work out your rental income when you let property (gov.uk)
- HMRC: SA105 UK property pages and notes (2025–26) (gov.uk)
- Finance Act 2025, Schedule 5 (furnished holiday lettings abolition) (legislation.gov.uk)
- HMRC helpsheet HS223: Rent a Room Scheme (2026) (gov.uk)
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