If a UK property business run by an individual makes a loss, that loss cannot be offset against the individual’s other income and gains. Instead, losses can be carried forward and set against future profits of the same business, indefinitely for as long as the same property business continues. Losses arising on an overseas property business are treated the same way, but can only be offset against future profits of the same overseas property business.
Therefore, it is important to know when a property business ends. Normally a property business will be regarded as ending when the last property is disposed of or used for some other purpose. Vacant periods do not mean the end of the business, provided the property is being actively marketed. HMRC guidance is that they would not normally suggest a property business has stopped where the gap between tenancies is less than 3 years and the landlord was seeking tenants.
The loss relief rules for companies are much more generous: relief for UK property business losses is given against the company’s total profits in the period, and any unused losses can be carried forward and used against total profits in future years. Losses made by a company on an overseas property business, however, can only be used against future profits of that overseas property business.