What happens if a landlord makes a loss?
The overview explains the consequences when a landlord incurs a financial loss, including potential tax relief options and the impact on overall financial planning
If your allowable expenses come to more than your rental income during a year, this is considered a loss for tax purposes.
Any loss is carried forward to the next year and offset against available profits. This must be done each year - you can’t store up losses to use when it suits you, such as to avoid becoming liable for higher rate income tax.
In the 2023/24 tax year, your rental income is £15,000 and your allowable expenses come to £18,000, leading to a £3,000 loss for the year. You pay no tax.
In 2024/25, your rental income is still £15,000 and you manage to bring down your expenses to £13,000, giving you a £2,000 profit. The £3,000 loss from the previous tax year is deducted from that profit, meaning you carry forward a loss of £1,000 and pay no tax for a second year.
In 2025/26, your expenses drop to £11,000 and your rental income rises to £15,450, giving you a profit of £4,450. Deduct the loss of £1,000 brought forward from 2022/23 and you’re left with a taxable income of £3,450. You’re now liable to pay income tax.
