A property business loss occurs when a company's allowable property expenses exceed its property income in an accounting period. Not all losses receive the same treatment. The way HMRC allows companies to use them depends on the timing, whether claims are made, and whether the business continues.
This guide covers everything you need to know about corporation tax property loss relief: how losses are relieved automatically against total profits, when formal claims are required for carry-forward relief, the post-2017 restriction rules, how Income Tax Property Losses from the pre-2020 regime are treated, group relief options, and the anti-avoidance rules that apply following ownership changes.
How are Property Business Losses Relieved for Corporation Tax?
A company with a UK property business loss has a specific sequence it must follow when relieving that loss. The ordering is mandatory and differs from how income tax treats property losses.
The loss must first be set against the company's total profits for the same accounting period in which the loss arose. This is not optional meaning the company cannot choose to preserve the loss for future use if it has total profits available in the current period.
What are Total profits?
Total profits mean all the company's chargeable profits from any source, not just property income. This includes trading profits, investment income, and chargeable gains.
The property loss reduces the overall corporation tax liability for that accounting period. Only after the loss has been used against current period total profits or if there are insufficient total profits to absorb it can any remaining loss be carried forward or surrendered as group relief.
What Conditions Must be Met to Carry Forward Property Losses?
For a UK property business loss to be carried forward to future accounting periods, two conditions must be satisfied:
Condition 1: Not Surrendered as Group Relief
The loss (or the relevant portion) has not been surrendered to another group company as group relief in the current period.
Condition 2: Continuity of Business
The company must continue to carry on the same UK property business in the next accounting period where the loss will be used.
If both conditions are met, the unrelieved loss carries forward and can be deducted from the company's total profits in subsequent accounting periods.
Do Companies Need to Claim Relief for Carried-Forward Losses?
Yes. Unlike the automatic current-year relief against total profits, using carried-forward property business losses requires an active claim by the company.
Claim Requirements
Aspect | Requirement |
|---|---|
Claim needed? | Yes, formal claim required |
What can be claimed? | All or part of the carried-forward loss |
Deadline | Within 2 years of the end of the accounting period in which the loss will be used |
Flexibility | Company can choose to claim less than the full loss |
The ability to claim only part of the loss gives companies flexibility in managing their effective tax rate and preserving losses for future periods if beneficial. This contrasts with the mandatory current-year relief, which must be used in full against available total profits.
If the company doesn't make a claim, or claims only part of the loss, any unclaimed balance remains available to carry forward to subsequent periods, subject to the business continuity requirement.
What are Income Tax Property Losses and How are They Treated?
From 6 April 2020, non-resident companies became chargeable to corporation tax rather than income tax on UK property profits. This created a transitional category of losses called Income Tax Property Losses (ITPL).
ITPL are the UK property business losses that arose when the company was chargeable to income tax (before 6 April 2020).
Carry-forward conditions:
The company was carrying on the UK property business at 5 April 2020
The cumulative loss at that date carries forward to the corporation tax regime
How they're used:
Against future profits from the same UK property business
Against non-trade loan relationship profits relating to that UK property business
No claim needed - relief is automatic
Cannot be used against other profits or gains
Cannot be surrendered as group relief
Priority:
ITPL must be used before any corporation tax losses arising on or after 6 April 2020
Not subject to the post-2017 loss restriction rules
The priority rule ensures that older income tax losses are cleared first, before newer corporation tax losses. Because ITPL are unrestricted, they provide full relief pound-for-pound against available profits.
How do the 2017 Corporation Tax Loss Reforms Affect Property Losses?
From 1 April 2017, significant changes were introduced to how carried-forward losses operate for companies. These reforms affected property business losses arising on or after that date.
Broader relief against total profits
Carried-forward UK property business losses arising from 1 April 2017 onwards can be set against the company's total profits from any source, not just property business profits. This provides greater flexibility in how losses are utilised.
Loss restriction rules
The reforms also introduced a restriction limiting the total amount of relief available for certain carried-forward losses. Companies are entitled to a share of a £5 million annual deduction allowance, which must be divided among companies that are members of the same group. Losses used above this allowance are restricted to 50% of the remaining profits.
Key Point: The restriction applies to the combined use of various types of carried-forward losses, not just property losses in isolation. Companies with multiple loss streams need to consider how the restriction applies across their total position.
Group relief for carried-forward losses
Most carried-forward property business losses incurred from 1 April 2017 can be surrendered as group relief for carried-forward losses to other group companies, expanding the options for utilising losses within a corporate group.
How Does the Loss Restriction Work?
A company made a £16 million UK property business loss in the year ended 31 December 2021. It also has £2 million of Income Tax Property Losses brought forward from the pre-2020 regime.
In the year ended 31 December 2022, the company generates total profits of £9 million before loss relief. How much loss relief can it claim?
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Key insight: ITPL receives full, unrestricted relief and takes priority, while CT losses face the £5 million deduction allowance and 50% restriction above that threshold.
What about Non-Commercial Property Losses?
Property business losses can only be relieved if the company carries on the property business either on a commercial basis or in the exercise of statutory functions.
Commercial Basis Requirement
The test:
For loss relief to be available, the property business (or the relevant part of it) must be conducted on a commercial basis, OR in the exercise of statutory function.
What this excludes:
Parts of a property business not carried on commercially are excluded from the loss relief provisions.
Example:
A company lets a holiday property at a nominal rent to its directors. This element is not conducted on a commercial basis. Losses attributable to this element cannot be relieved.
The rules permit HMRC to apportion the property business and exclude the non-commercial portion from loss relief. This prevents companies from generating artificial tax losses through transactions that lack commercial substance.
What Happens to Property Losses when a Property Business Ceases?
When a UK property business ceases, unused losses are normally extinguished and cannot be carried forward.
However, companies with an investment business have an important exception.
Cessation Relief for Investment Companies
When it applies:
Where a company:
Has UK property business losses that would have been carried forward if the business hadn't ceased, AND
Has an investment business (defined above) that continues in the next accounting period
The relief:
The property loss can be carried forward and deducted as a management expense in the next accounting period, provided the company continues to qualify as a company with investment business.
Claim requirement:
A claim is required before relief is allowed (subject to the standard claim requirements above).
From 1 April 2017, management expenses carried forward in these circumstances no longer have priority over other deductions from total profits, giving companies more flexibility in ordering their reliefs.
Can Property Losses be Transferred when a Property Business is sold?
No. The rules prevent the transfer of accumulated property losses when one company acquires a property business from another company.
No Loss Transfer on Business Acquisition
The situation: Company A sells its UK property business to Company B.
The losses:
Corporation tax losses accumulated by Company A
Income Tax Property Losses held by Company A
The result: Neither type of loss can be carried forward by Company B and used against profits from the acquired property business. The losses remain with Company A but cannot be used once the business has been transferred.
This applies regardless of:
Whether the companies are UK resident or non-UK resident
Whether the transaction is part of a group restructuring
The commercial reasons for the transfer
This prevents loss buying arrangements where companies might be acquired primarily to access their accumulated losses.
How does Group Relief Work for Property Business Losses?
Companies that are members of a group for corporation tax purposes can surrender certain losses to other group companies as group relief. Property business losses qualify for surrender, but with specific restrictions.
What can be surrendered:
A UK property business loss incurred in the current accounting period can be surrendered as group relief to another qualifying group company.
What cannot be surrendered:
Property business losses brought forward from earlier accounting periods
Non-commercial property losses
Income Tax Property Losses
Key distinction:
While only current-period UK property business losses can be surrendered as standard group relief, UK property business losses carried forward from accounting periods beginning on or after 1 April 2017 may be surrendered as group relief for carried-forward losses.
The surrendering company must have actually incurred the loss in the current accounting period for which group relief is being claimed. Historical losses that have already been carried forward are locked to the company that generated them.
Planning Point: Companies within a group should consider group relief claims before allowing losses to be carried forward, as surrender becomes unavailable once the period ends.
What Happens to Losses Following a Change in Company Ownership?
Where there is a change in ownership of a company carrying on a property business which is not a company with investment business, the anti-avoidance rules apply to restrict the use of carried-forward losses. This prevents "loss buying" - where companies are acquired primarily to access their tax losses rather than for genuine commercial reasons.
Why these rules exist?
Without these rules, profitable companies could buy loss-making companies just to use their accumulated losses as a tax shelter. HMRC blocks this by imposing restrictions when ownership changes are combined with significant business changes.
When do the restrictions apply?
The restrictions trigger when TWO things happen together:
There's a change in company ownership, AND
Either:
- The business changes significantly (Condition A), OR
- The business has become dormant or minimal (Condition B)
Understanding Condition A: Major Business Change
A major business change means a fundamental shift in what the company does or how it operates.
The 3-year window:
Condition A is met if within any period of three years in which the change of ownership occurs, there is a major change in the nature or conduct of the trade or property business carried on by the company.
Important: Even if the property business itself hasn't changed, a major change in a separate trade carried on by the company can still trigger these rules for the property losses.
Understanding Condition B: Dormant or Minimal Activity
This provision targets companies that have wound down their operations to minimal levels but retain accumulated losses. If a company's business activities have become small or negligible, and ownership then changes before any significant revival, the restrictions apply.
Example:
A company previously ran 20 rental properties but has sold all except one. The business is essentially dormant. If someone now buys this company (presumably to access its £5 million of accumulated losses), the restrictions will block those losses.
What happens when the restrictions apply?
When either Condition A or B is met, the old losses are blocked from being used after the ownership change. Losses made before the ownership change cannot be used to reduce profits made after the ownership change.
What is restricted:
The company's ability to:
Set losses against total profits
Surrender losses as group relief
Carry losses forward in a UK property business
Carry losses forward in an overseas property business
How the Restriction Works:
The accounting period in which the ownership change occurs is split into two notional accounting periods:
First notional period: From the start of the actual period until the ownership change
Second notional period: From the ownership change to the end of the actual period
Apportionment:
Profits or losses of the actual accounting period are divided between the two notional periods on a time basis according to their respective lengths. If time apportionment would be unjust or unreasonable, a more appropriate method can be used.
Consider a property company with £8 million of accumulated losses that is sold on 30 June 2025. The company's year-end is 31 December 2025, and it generates £10 million of profit during the full year. If the acquisition triggers the restrictions because the new owners plan significant business changes, the year divides into two periods. The £5 million of profit earned from January to June can be reduced by the old losses. However, the £5 million earned from July to December receives no benefit from those historical losses. The new owners have acquired a company whose £8 million of tax losses provide relief for only half the year's profits, with the remaining losses becoming permanently unusable.
How do Overseas Property Businesses Differ?
Overseas property businesses are treated separately from UK property businesses. Losses from an overseas property business can only be carried forward against profits of that same overseas business. They cannot be used against UK property profits or other income streams, even within the same company.
Similar ownership changes restrictions apply to overseas property business losses when Condition A or B is met.
What about Furnished Holiday Lettings Losses?
For accounting periods beginning before 1 April 2025, furnished holiday lettings were treated as separate business categories:
UK furnished holiday lettings: Losses could only be carried forward for use against profits of the same UK FHL business in future accounting periods.
EEA furnished holiday lettings: Losses could only be carried forward for use against profits of the same EEA FHL business in future accounting periods.
From 1 April 2025 onwards, these special rules no longer apply, and such properties are treated according to the general property business rules.
Important Update
The furnished holiday lettings rules cease to apply from 1 April 2025 for corporation tax and corporation tax on chargeable gains.
Key Takeaway
Corporation tax property losses follow a strict sequence. First, losses must be set against the company's total profits in the same accounting period automatically. Any unused balance can then be carried forward (requiring a claim within two years) or surrendered as current-period group relief. Companies can claim all or part of carried-forward losses, but post-2017 restrictions limit relief above £5 million to 50% of remaining profits.
Special rules apply in several situations. Income Tax Property Losses from the pre-2020 regime receive automatic, priority relief but cannot be surrendered. Losses are normally lost when the business ceases, unless the company can convert them to management expenses. Ownership changes coupled with major business changes block pre-change losses from future use. The business must be conducted commercially for any loss relief to apply.
Glossary
Total profits = All chargeable profits from any source (trading, property, investments, gains)
Investment business = A company whose business consists wholly or partly of making investments
ITPL (Income Tax Property Losses) = Legacy losses arising before 6 April 2020 when non-resident companies were subject to income tax
Accounting period = The period for which a company prepares its corporation tax return
