Capital Losses on Rental Property

Lisa1978

Good Morning, 

We have a rental property that i am thinking of possibly selling within the next few years.  We used to live in the property but have now let it out to move into our now home. 

We bought it in 2008 and paid £125k for it.  It is now only worth £100k.  I am aware if it sold for more than we paid for it then we would need to declare CGT on my SA but what happens with Capital Losses? How does this affect my tax etc? 

Thank you 

Pennywise

The loss attributable to the period you let it out is an allowable capital loss that can be set against future capital gains.

The loss needs to be time apportioned.  I.e. you split the £25k loss over the ownership period, so if you lived in it half the years and rented it out half the years, you'd have an allowable capital loss of £12.5k (it's more complicated than that due to the exemption for the final 9 months, (and maybe other reliefs) but that's the general gist of how CGT works).

Lisa1978

Pennywise said:

The loss attributable to the period you let it out is an allowable capital loss that can be set against future capital gains.

The loss needs to be time apportioned.  I.e. you split the £25k loss over the ownership period, so if you lived in it half the years and rented it out half the years, you'd have an allowable capital loss of £12.5k (it's more complicated than that due to the exemption for the final 9 months, (and maybe other reliefs) but that's the general gist of how CGT works).

Thanks i appreciate this info.  I have another property that i have let out for approx 10 years which will have a CGT so i will be able to offset against this? 

[Deleted User]

Yes you can - the £12500 loss in pennywise’s example can be either set against gains in the same year or carried forward against future gains. Note that losses cannot be carried back and, therefore, it would not be in your interest to sell the loss making property in a later tax year from any sale in the other property.

Jeremy535897

[Deleted User] said:

Yes you can - the £12500 loss in pennywise’s example can be either set against gains in the same year or carried forward against future gains. Note that losses cannot be carried back and, therefore, it would not be in your interest to sell the loss making property in a later tax year from any sale in the other property.

It's also worth noting that if you sell both properties in the same tax year, the loss is set against the gain before using any annual exemption, which may waste it, depending on the figures. However, if you sell the profitable property the year after the loss making property, you can deduct the annual exemption from the gain in year 2 before deducting the loss brought forward from year 1.

Lisa1978

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

[Deleted User]

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Lisa1978

[Deleted User] said:

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Morning, the apartment is the loss making property.  It is in joint names.  We then moved into our now residential home and let it out. 

The house is in my name only.  It was my property before i met my now husband. 

Thanks. 

[Deleted User]

Lisa1978 said:

Yep purdyoaten2 said:

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Morning, the apartment is the loss making property.  It is in joint names.  We then moved into our now residential home and let it out. 

The house is in my name only.  It was my property before i met my now husband. 

Thanks. 

The loss on the apartment property can be carried forward indefinitely. However, as the house is in your name only only half of this loss is available to set against it with your husbands half of the loss unable to be utilised.

Would your husband consider putting the apartment into your name only at this stage?

Lisa1978

[Deleted User] said:

Lisa1978 said:

Yep purdyoaten2 said:

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Morning, the apartment is the loss making property.  It is in joint names.  We then moved into our now residential home and let it out. 

The house is in my name only.  It was my property before i met my now husband. 

Thanks. 

The loss on the apartment property can be carried forward indefinitely. However, as the house is in your name only only half of this loss is available to set against it with your husbands half of the loss unable to be utilised.

Would your husband consider putting the apartment into your name only at this stage?

I'm sure he would although i'm not sure its a good idea as he is a basic rate payer whereas i'm a 40% tax payer. Thanks! 

[Deleted User]

Lisa1978 said:

purdyoaten2 said:

Lisa1978 said:

Yep purdyoaten2 said:

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Morning, the apartment is the loss making property.  It is in joint names.  We then moved into our now residential home and let it out. 

The house is in my name only.  It was my property before i met my now husband. 

Thanks. 

The loss on the apartment property can be carried forward indefinitely. However, as the house is in your name only only half of this loss is available to set against it with your husbands half of the loss unable to be utilised.

Would your husband consider putting the apartment into your name only at this stage?

I'm sure he would although i'm not sure its a good idea as he is a basic rate payer whereas i'm a 40% tax payer. Thanks! 

I presume that you are concerned that he will pay tax at 40% on the half share of the rental income that he will receive. However, as a married couple, one can declare to have a different percentage of share on the income from a property than from the ownership. See attached:

https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17