Property letting tax help

SWPT

Dear All,

If I rent out a property I own starting in February of the year, is it correct that the total loss made in that tax year can be used to offset against tax for the following year?

E.g. If net rental income for the tax year is £500 (two months worth as the rental began in February) and total mortgage interest from that whole year is £5000, can £4500 be carried over to the following year to offset against any profits for tax purposes?

I hope that makes sense!

Cheers,

Simon

pcgtron

You can't offset interest from a period when you weren't letting the property. You can only offset interest from the property being let out.

If you have any losses from the period Feb - April 5th, you can offset them to the following year, but not interest charged for the full year

madgagoo

The loss could be carried forward if you were, genuinely, looking for tenants in the 10 months that the property was not let for.

If the property was not available for letting in the 10 months, then no the loss cannot be claimed. As pcgtron says, you could only include the mortgage interest for the period it was let.

antrobus

SWPT wrote: »

...E.g. If net rental income for the tax year is £500 (two months worth as the rental began in February) and total mortgage interest from that whole year is £5000, can £4500 be carried over to the following year to offset against any profits for tax purposes?....

Depends on what exactly you were doing with the property in the ten months prior to the commencement of the rental.

A property may be let for short periods in a tax year or only part of it may be let throughout a tax year (or both); the rest of the time the property is used for private or non-business purposes. Here the interest charged on a qualifying loan on that property has to be split between the rental business use and the private or non-business use. The split is done in whatever way produces a fair and reasonable business deduction, taking account of both the proportion of business use and the length of business use.

You don’t have to split the interest if the taxpayer is genuinely trying to let the property but it is empty because they have not been able to find a tenant. In this case the interest will meet the “wholly and exclusively” test. It won’t meet this test if they have not been trying to let the property or they have been using it for private or non-business purposes.

Interest payable on property only partly used for rental business
http://www.hmrc.gov.uk/manuals/pimmanual/pim2105.htm