A property loss occurs when your allowable rental expenses exceed your rental income in a tax year. Not all losses receive the same tax treatment. The way HMRC allows you to use them depends entirely on what type of expenses created them.
This guide explains everything you need to know about property loss relief: how losses carry forward automatically, when you can claim them against your general income, the strict caps that apply, and the critical differences between losses from capital allowances, agricultural expenses, and ordinary rental costs.
How can Property Losses Reduce your Tax?
HMRC provides two ways to obtain relief for property business losses:
Carry-forward relief involves using the loss against future profits from the same property business. This happens automatically without requiring any special claim. Every property loss receives this treatment as a minimum.
Relief against general income allows you to set certain types of loss against all your taxable income from any source for the same tax year or the following year. This route is far more restricted and only available when your loss includes specific elements that HMRC treats differently from ordinary rental losses.
Carry-Forward Relief | Relief Against General Income |
|---|---|
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How does Automatic Loss Carry-Forward Work?
Any property business loss automatically carries forward and must be set against property business profits in the following year. You don't submit a claim or make an election. When calculating your rental profit for the next tax year, you simply deduct any losses brought forward from the previous year before arriving at your taxable profit.
This carry-forward continues indefinitely until the loss is fully used. If next year's profit is too small to absorb the entire loss brought forward, the unused portion carries forward to the year after that, and so on. If you make another loss in the current year, you add any loss brought forward to it, and the combined total carries forward together.
Note
Where you claim relief against general income for part of a loss, the amount that carries forward is reduced accordingly.
Can you use losses from one property business against another?
No. Property losses can only be set against profits from the same property business. They cannot cross boundaries between different property businesses or different capacities.
Losses Cannot Cross These Boundaries
Your Property Business | Losses CANNOT Be Used Against |
|---|---|
Personal rental business | Partnership rental income |
Partnership share | Personal rental business |
UK property business | Overseas property business |
Overseas property business | UK property business |
One furnished holiday let business (pre-2025) | Another property business |
Each row in the table represents a legally separate business for loss relief purposes. For example, your personal rental losses cannot offset partnership rental income you receive, even though both are property income to you personally.
Until April 2025, furnished holiday lettings were treated as a separate business category, meaning those losses could only be used against future profits from the same furnished holiday lettings business.
What happens when a property business stops?
Losses can only be carried forward while the same property business continues. If your business ceases permanently, any unused losses are lost. They cannot be revived if you later start a new property business.
Important: Whether a business has genuinely ceased or merely paused is a question of fact. Maintaining continuity (even with a gap in lettings) can preserve your ability to use carried-forward losses.
Do all property losses qualify for tax relief?
Not necessarily. Where property is let on uncommercial terms. For example, at a nominal rent to a family member, the expenses relating to that property can only be deducted up to the amount of rent or other receipts it generates.
Uncommercial Lettings Rule: Any excess of expenses over receipts from uncommercially let property cannot create a loss available for relief. The loss relief rules only apply where the loss arises from ordinary commercial letting.
When can Property Losses be Set against General Income?
Most property losses can only be carried forward against future property profits. However, HMRC permits losses to be set against your general income in very specific circumstances.
Losses That Qualify for Relief Against General Income
Only two types qualify:
Capital Allowances Losses
Agricultural Expenses Losses
Ordinary rental losses DO NOT qualify. These can only be carried forward against future property profits.
Until the tax year 2010-11, losses attributable to furnished holiday lettings could also be set against general income. That route was closed from 2011-12 onwards. From April 2025, the furnished holiday lettings regime no longer applies at all.
What are capital allowances and how do they create eligible losses?
Capital allowances are tax deductions for capital expenditure on equipment and fixtures used in your rental business (such as boilers, kitchen appliances, or furniture in furnished lettings).
Net capital allowances = Capital allowances claimed minus any balancing charges
When your property business makes a loss, the portion attributable to net capital allowances can potentially be set against your general income but only if you make a formal claim.
Calculating Net Capital Allowances
Item | Amount |
|---|---|
Capital allowances claimed | £10,000 |
Less: Balancing charges | £4,000 |
Net capital allowances | £6,000 |
Only the net figure (£6,000) determines how much of your loss can be set against general income.
Which agricultural expenses make losses eligible for relief against general income?
Where your rental business includes agricultural land, certain expenses relating to that land can make part of your loss eligible for relief against general income.
Definitions:
Agricultural land = Land, houses, or buildings in the UK occupied wholly or mainly for husbandry
Agricultural estate = Land managed as one estate that consists of or includes agricultural land, plus houses and buildings
Qualifying Agricultural Expenses
Expense Category | Qualifies? |
|---|---|
Maintenance of agricultural estate | Yes |
Repairs of agricultural estate | Yes |
Insurance of agricultural estate | Yes |
Management of agricultural estate | Yes |
Interest payable | No - specifically excluded |
Rent paid | No - doesn't fall within the four categories |
Rates paid | No - doesn't fall within the four categories |
The expenses must be ones that are properly deductible in your rental business calculation. Where the estate includes non-agricultural land, expenses relating to parts not used for husbandry should be excluded from this calculation.
Key Insight: The loss doesn't need to have arisen specifically from the agricultural land itself. If the agricultural land is profitable but your overall rental business makes a loss, and you have allowable agricultural expenses, relief can still be available.
Which Tax Year can you Claim Relief against?
When you have a loss that qualifies for relief against general income whether through capital allowances or agricultural expenses. You can choose to set it against your general income for either the same tax year in which the loss arose or the following tax year.
Timing of Relief Claims
Loss Arises In | Can Claim Against General Income For |
|---|---|
2024-25 | 2024-25 OR 2025-26 |
2025-26 | 2025-26 OR 2026-27 |
Cannot claim against:
The year before the loss arose (no backward relief)
Two years ahead
This differs from trade loss relief, where losses can be set against the same year or the previous year. For property losses, there is no backward relief. You cannot carry a loss back to the year before it arose.
You're not required to use the earlier year first. You can choose which of the two years to claim against based on where you have more income or where relief would be most valuable.
Remember: If you make a claim for the following tax year and the loss had previously been carried forward for that year in your tax return, you must amend your return to reduce the carried-forward loss by the amount you're now claiming against general income.
How Much Loss can Actually be Relieved against General Income?
Even where you have a loss that qualifies for relief against general income, the amount you can actually relieve faces strict limits.
The Three-Cap Rule
Your maximum relief is the SMALLEST of:
The practical effect is that you can only claim the smallest of these three amounts. Any loss that exceeds this capped amount must be carried forward as an ordinary property loss.
Important: This three-cap rule applies identically whether your qualifying expenses are capital allowances, agricultural expenses, or both. The examples below demonstrate how it works in practice.
Must you claim the full amount or nothing?
When you make a claim to set a property loss against general income, you must claim the full amount available up to the limit of your general income. You cannot choose to claim a smaller amount to preserve your personal allowances or to stay within a lower tax band.
You MUST claim:
The full eligible loss, up to your general income limit
You CANNOT:
Claim a partial amount
Preserve your personal allowance by claiming less
Choose to stay in a lower tax band
It's either the full eligible loss or no claim at all.
This differs from some other tax reliefs where you have more flexibility. This rule means you need to consider carefully whether making the claim is actually beneficial, particularly where your general income is modest and claiming the full loss would waste your personal allowance.
What Happens When you Claim Relief for Losses from Multiple Years?
You can face a complex situation: claiming relief in 2025-26 for both:
A 2024-25 loss (using the "following year" option), AND
A 2025-26 loss (using the "same year" option)
Order of Relief When Multiple Claims Apply
Step 1: Brought-forward ordinary losses
Set against current year's property profits first
Reduces property profit (may reduce it to zero)
Step 2: Prior year's loss against general income
Relieved first against remaining general income
Only if you've made a claim for it
Step 3: Current year's loss against general income
Relieved against any remaining general income
Only after Step 2 is complete
This ordering affects how much of each loss gets relief and how much must be carried forward. The earlier loss gets priority in using the available income.
Additionally, any ordinary property business loss brought forward from a previous year under the automatic carry-forward rules must be set against the current year's property profits before calculating what general income remains available. This further reduces the amount of general income against which relief can be given.
Can Losses that aren't Fully Relieved be Used Later?
If the total amount of loss eligible for relief against general income cannot be fully relieved in the available years either because your general income isn't high enough or because the loss exceeds the caps, the unused portion is not lost.
Instead, it's treated as an ordinary property business loss that carries forward under the normal rules. It can be set against future profits from the same property business but cannot be set against general income in any later year.
One Chance Only: Once the opportunity to claim relief against general income has passed (after the following tax year), that opportunity is gone forever for that loss. The excess becomes a standard carry-forward loss only.
This is why timing and calculation are so important. If you claim relief against general income and exhaust your income, you may waste your personal allowances while still having loss to carry forward. Alternatively, if you choose not to claim, you preserve your personal allowances and carry forward a larger loss, but you miss the chance to obtain earlier relief.
How do you Make a Valid Claim for Relief against General Income?
Relief against general income doesn't happen automatically. You must make a formal claim within strict time limits.
Claim Requirements & Deadlines
Loss Year | Normal Filing Date | Claim Deadline |
|---|---|---|
2023-24 | 31 January 2025 | 31 January 2026 |
2024-25 | 31 January 2026 | 31 January 2027 |
2025-26 | 31 January 2027 | 31 January 2028 |
Deadline formula: First anniversary of 31 January following the end of the tax year
Where possible, you should include the claim in your tax return or submit it as an amendment to your return. If you're making a claim for the year following the year in which the loss arose, and the loss was previously shown as carried forward in your return, you must amend that return to reduce the carried-forward loss by the amount you're now claiming.
Multiple Year Claims: If only part of your eligible loss can be relieved in one year, you need to make a separate claim to relieve the remaining amount in another year where relief is available.
How do the Caps Work in Practice with Capital Allowances?
The following examples demonstrate how the three-cap rule (explained above) operates with capital allowances in different scenarios.
Example 1: Sufficient General Income
Scenario:
Rental business loss: £20,000
Net capital allowances within that loss: £15,000
General income (after deductions): £25,000
The smallest of the three caps is £15,000 (the net capital allowances), because:
1 General income available: £25,000
2 Actual losses: £20,000
3 Qualifying expenses: £15,000 ← SMALLEST
Outcome:
Loss relief against general income is £15,000 and rest £5,000 losses is Carried forward as ordinary loss.
Example 2: Limited General Income
Scenario:
Rental business loss: £20,000
Net capital allowances within that loss: £15,000
General income (after deductions): £10,000
The smallest of the three caps is £10,000 (the available general income).
Outcome:
Loss relief against general income is £10,000 and rest £10,000 losses is Carried forward as ordinary loss.
How do the Caps Work with Agricultural Expenses?
The three-cap rule explained earlier applies identically to agricultural expenses. Your maximum relief is the smallest of:
Available general income (after deductions)
Total rental business loss
Qualifying agricultural expenses
The only difference from capital allowances is what counts as "qualifying expenses." For agricultural estates, these are limited to maintenance, repairs, insurance, and management expenses (interest is specifically excluded).
Remember: Only the four categories of agricultural expenses listed earlier qualify (maintenance, repairs, insurance, and management). Interest and expenses on non-agricultural parts of your estate must be excluded from this calculation.
Non-Commercial Agricultural Lettings: The uncommercial lettings rule (explained earlier) also applies to agricultural property. Expenses cannot exceed receipts to create a claimable loss.
What if your Capital Allowances or Agricultural Expenses Exceed your Loss?
Where capital allowances or agricultural expenses exceed your overall rental loss, relief is still capped at the actual loss amount.
Example: Qualifying Expenses Exceed Loss
A landlord has £12,000 net capital allowances but only a £5,000 overall rental loss (because other rental income partially offsets the allowances). Despite £35,000 general income being available, relief is limited to £5,000, the actual loss.
Why £5,000 and not £12,000?
This prevents landlords from obtaining relief for notional losses that don't actually exist at the overall business level.
Is Claiming Relief against General Income always Beneficial?
Although relief against general income provides earlier access to loss relief, it's not always advantageous to claim it. Because you must claim the full eligible amount (as explained earlier), this can waste your personal allowances or tax-free savings allowances.
Claim vs. Don't Claim: A Comparison
Scenario: Landlord with £15,000 general income makes an £18,000 loss (all attributable to capital allowances)
Factor | If You Claim | If You Don't Claim |
|---|---|---|
Relief against general income | £15,000 immediately | £0 |
Taxable general income | £0 | £15,000 (covered by personal allowance) |
Personal allowance usage | Potentially wasted | Fully utilized |
Loss carried forward | £3,000 | £18,000 |
Future flexibility | Less | More |
The trade-off: Earlier relief vs. preserving allowances and maximising carry-forward
Things to Consider Before Claiming:
Your future property profit expectations and tax rates
Whether claiming wastes your personal allowance
Whether delaying the claim provides more value
Your immediate cash flow needs
Landlords need to consider all consequences carefully before claiming, bearing in mind that partial claims are not permitted.
What Recent Changes affect Property Losses?
Recent Changes (April 2025 Onwards)
Furnished Holiday Lettings (FHL) Regime Abolished
No longer treated as a separate business category
Previous FHL losses now follow standard property loss rules
Affects both income tax and capital gains tax
FIG Regime for Overseas Property
If you claim under FIG regime for overseas property:
Cannot claim relief for overseas property losses that tax year
Carried-forward overseas losses treated as nil for that year
How do Property Loss Rules Differ from Trading Loss rules?
Let’s understand the differences between property and trading loss relief :
Feature | Trading Losses | Property Losses |
|---|---|---|
Sideways relief timing | Same year or previous year | Same year or following year only |
Carry back | Yes - to previous year | No - cannot carry back |
Restrictions on sideways relief | Generally unrestricted | Only capital allowances & agricultural expenses |
Type of activity | Active trading | Passive investment |
Generosity of relief | More generous | More restrictive |
These differences reflect that property letting is generally passive investment rather than active trading, and therefore the more generous trading loss reliefs are not appropriate.
Key Takeaways
All property losses automatically carry forward indefinitely against future profits from the same business, without crossing boundaries between personal and partnership businesses or between UK and overseas property. No claim is required. For losses attributable to capital allowances or agricultural expenses, you may claim relief against general income for the same year or following year. However, you must claim the full eligible amount capped at the smallest of your general income, actual loss, or qualifying expenses. This should be done by 31 January one year after the normal filing date. Ordinary rental losses, uncommercial lettings, and interest on agricultural property don't qualify.
Claiming delivers immediate tax relief but may waste personal allowances and reduces future carry-forward. Where general income is modest or substantial property profits are expected, preserving the loss often proves more valuable.
