Your company's rental properties have made a loss this year, and now you need to know what happens to it: whether it wipes out this year's corporation tax bill automatically, whether you have any say in the timing, or whether it simply disappears if you miss a step. The rules are tighter than most directors expect. Relief in the current year isn't a choice, and anything carried forward needs both an active claim and continuity of the same property business, with a £5 million cap on top since the 2017 reforms limiting how much older losses can offset in one go.
This guide walks through that full sequence, current year relief, carry forward conditions, the loss restriction, group relief, and what happens if the company changes hands, and it leaves out income tax property losses for individual landlords, which sit under a completely different regime.
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.
How Do You Carry Forward Property Business Losses?
What Conditions Must Be Met to Carry Forward 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 You 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.
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 above.
What Are Income Tax Property Losses (ITPL)?
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, and the cumulative loss at that date carries forward into the corporation tax regime.
How They're Used: |
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Priority:
ITPL must be used before any corporation tax losses arising on or after 6 April 2020, and they are not subject to the 2017 loss restriction rules covered next.
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 Reforms and Loss Restriction Rules Work?
What Changed in the 2017 Reforms
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.
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, a broadening from the pre 2017 position.
Alongside that broader relief, 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.
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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.
