In these turbulent times, losses on property lets may be increasing,
so it's worth taking a look at how those losses are treated for tax
purposes, to help get tax relief for any losses.

Where property is held in your own name

If you let a property you own personally, even it was previously your
own home, you must report the rental income and expenses on your tax
return. This applies whether you make a profit or loss from the
letting.

Where you own several let properties all of the income and expenses
relating to your UK properties are thrown into the same pot to
establish the overall profit or loss for the year. Properties which are
located outside of the UK are excluded from this property pot, as are
properties which are let as furnished holiday homes on short lets. The
profits and losses from overseas properties must be shown on the
foreign income pages of your tax return. Furnished holiday lettings
have special rules for dealing with losses and have some advantages.

It is important to declare the loss, if that is the result from the
general property pot. Although you can't set that loss against your
other income, it can be carried forward without time limit. If you do
make a profit from letting your properties in a future year the loss
you have made this year will reduce the tax you have to pay in that
future period. If you don't claim the loss you won't be able to use it
in the future.

Where property is held through a company

Where you hold let properties through a company the mechanism for
calculating the profit or loss from the lettings is rather different.
The interest paid on any borrowings taken by the company to fund the
properties is not deducted directly from the rents, but it is treated
as a separate expense.

The rental income from all the properties the company owns is set
against the costs relating to those properties, excluding interest
paid. Only at that stage is the interest payment set-off against all of
the company's profits for the year. If those profits do not cover the
whole of the interest paid, the excess interest cost is carried forward
to the next year. The carried forward interest can only be set against
the company's non-trading profits, such as from property or interest
received. This means that it is not easy to get tax relief for excess
interest where the borrowing relates to let property.