Many landlords don’t understand enough about their legal tax claims and end up paying much more to the government than is needed.
Rental losses are one area many landlords find confusing.
For definition, a rental loss will arise if the rental expenses are higher than rental income from the property.
Some of the main reasons for losses are; high repairs costs on the buildings, financing costs ( such as bridging etc) or possibly a low income from the rents.
Tax Equals “Single Rents”
One very important thing to note is that all properties let by a landlord are treated as a ‘single rental business.’ What this means in reality for the landlord is that any extra rental expenses which exceed the full years rental income can then be carried forward to ‘offset’ against any potential future rental income.
Should this happen over a number of tax years, then the rental losses carried forward can easily grow to large amounts.
It should be noted that within the tax law surrounding offsetting rental loss, there is a provision which allows “any loss attributable to capital allowances” to be offset against the landlords’ other income or gains. This is not a common occurrence though.
Sale Of Property
Eventually if the rental property is sold and the landlord still has other rental properties which are lets, then the sale property will be treated as a part of the rental business. Hence, the rental losses will still stay with the rental business, and, can still be offset against rental profits which may arise on any of the other properties. This rule applies even if the rental income comes from properties which are bought after the sale.
The rental losses continue forward whilst the rental business still continues. If the rental business should cease trading, then the losses would die with it. These losses would then be lost forever. Finally, if the cessation was only temporary within the rental business, then the losses would not be lost at all.
