Blog Layout

Tax relief for rental property losses post Covid

Chartwell • Aug 09, 2022

Tax relief for rental property losses post Covid

Landlords could have been said to be the ‘forgotten business’ of the Covid pandemic – granted, they were able to take a three month ‘holiday’ from mortgage payments but they were not given any direct help from the government (apart from business rate holidays and grants for Furnished Holiday Lets).


Despite assistance via the furlough scheme for employees and the self-employment income support scheme for those running their businesses, some tenants fell into rent arrears such that many landlords are currently sitting on losses (although the tenant remains liable for the unpaid rent). How those losses are dealt with taxwise depends on the type of rental property and whether the landlord uses the ‘cash basis’ or the ‘accruals basis’ of calculation.


Profits and losses on property income are calculated in the same way as for a trading business but the letting is taxed as investment income such that the normal reliefs for trading businesses (including those available to offset losses) are not available. In addition, if a landlord has more than one type of ‘property business’, separate ‘pools’ are used for similar types of property i.e. furnished holiday lets, UK and overseas lets are kept separate.


As part of HMRC’s ‘Making Tax Digital’ strategy where an individual landlords’ annual total turnover (gross rents) is less than £150,000, the default accounting method is now the cash basis. Companies and Limited Liability Partnerships are required to use the ‘accrual’ basis (i.e. recognising income received, and expenses paid on an invoice basis, regardless of whether or when the cash is received). However, an individual landlord can ‘opt out’ of the cash basis and use the ‘accruals’ basis by making an election on their tax return. In addition, should the landlord have separate types of property businesses they can opt out of the cash basis for one property business and remain within for another. The ‘opt out’ election takes the landlord out of the cash basis for one tax year only and must be made for each subsequent year as required.


The calculation of profit or loss is undertaken at business level so providing automatic offset if one property makes a loss and another makes a profit. Although the general rule is that losses from a property rental business can only be relieved by carry forward and offset against future profits of the same property business, there is a limited set off available for commercial properties. If there is an overall income tax loss on an individual’s continuing commercial property portfolio over a tax year and that loss has been created by excess capital allowances claimed, then the loss can be relieved by being offset against the owner’s other (‘general’) income for the same and/or next tax year. Otherwise, the loss is automatically carried forward and set against future profits of the same UK property business.


This loss relief may be further restricted because it is only available up to £50,000 or 25% of the taxpayer’s adjusted net income, whichever is the lower.



If a landlord’s other income is less than the personal allowance, the accrual basis of calculation has been used (possibly because the rental income exceeds £150,000) and the loss has been incurred due to capital allowances, then rather than offsetting the total loss against general income in the year of loss, better tax planning would be to disclaim some or all of the capital allowances and carry forward the balance so as not to waste the personal allowance.

The seventh cause of poor cashflow - Sales levels are too low

By Anna Stubbs • 19 Apr, 2024
It might sound obvious, but it isn’t to many businesses. If current sales levels don’t support the overheads and other cash demands on the business, then your overdraft will keep increasing. This means that your business in its current state is not viable (unless you have ongoing access to new funds from investors or financiers). There are five ways to improve your sales levels. These are: 1 . Increase customer retention . Stop your customers from defecting to the competition. 2 . Generate more leads . Gain more enquiries from people who are not yet customers. 3. Increase your sales conversion rate. Get more of your prospects to buy from you. 4. Increase transaction frequency. Engage your customers to buy from you more often. 5. Increase transaction value. Help your customers to buy more products or services from you. There are literally hundreds of individual strategies that you can implement within these categories to increase sales. Sending you a list would be pretty silly of us and overwhelming for you. Some strategies don’t apply to your industry, and some just won’t work in your business for whatever reason. What we have found through experiencing a wide range of client situations over the years, is that certain things do work in each type of business. There’s a pattern that we see in clients - both good and bad! How does a business grow its sales without its owners becoming overwhelmed by a mountain of change? The best and most supportive way to grow and improve a business is to have someone looking over your shoulder from time to time, helping you build a plan and a forecast, and keeping you accountable to making the changes that will make the most important differences. Without that support, we all end up in our business and never working on it. Talk to us about how we can provide that support.

The sixth cause of poor cashflow - Overheads are too high

By Anna Stubbs • 19 Apr, 2024
Overheads isn’t typically a place where you will find a lot of wastage. Our experience is that business owners are very careful about managing their expenses, and the smaller the business, the truer that statement is. Having said that, as a business grows, so do the layers of hierarchy. Management control can deteriorate, and the business can become a bit flabby. The trick is to trim the fat but not the muscle when evaluating your expenses. As an absolute minimum, every business should do a thorough review of its overheads at the same time every year, so that it becomes a natural routine. Here are some questions to ask yourself: Do appropriate managers and key staff have individual expense budgets? If so, how are these managed? Have you conducted a formal review of all debt service costs and related fees? What policies and cost control processes are in place for sales staff? Include all working away allowances, vehicle reimbursement expenses, entertainment, and credit card use. What was your total marketing and advertising spend for the last 12 months? Have you analysed each component of spend based on effectiveness and results to the business? When was the last time you renewed your IT support contract? Have you negotiated a fixed monthly fee? If so, is your current fee and contract appropriate (consider migration of services to cloud)? List all subscriptions you pay monthly for SaaS cloud services. Are you using all these services and on the right plan for each? Conduct a cost-benefit analysis. And finally, do you consider your accounting fees a cost or an investment? If they’re a cost, you need to reduce them. If you’re getting value from your annual spend with us, maybe you should invest more to get better business outcomes! Best practice for keeping control over spending is to set budgets and monitor them monthly. Talk to us about the best way to do that. We can show you the impact reducing your overheads can have on your cashflow.

The fifth cause of poor cashflow - Gross profit margins are too low

By Anna Stubbs • 19 Apr, 2024
Your gross profit margin is what is left from your total sales after variable costs are deducted. For example, if you're a retailer and your sales in a given period are £1,000,000, and the cost of the goods you sell in that period is £650,000, then your gross profit margin is £350,000, or 35%. In the above example, if you implement some strategies to improve the margin from 35% to 39%, your gross profit will improve from £350,000 to £390,000. That’s an increase in profit of £40,000. You may need to increase your overheads a little to get that increase, however, if you get the results, it will be well worth your investment and energy. There are many ways to lift gross profit. Some will be appropriate for your business, and some won’t. For example, if you’re a retailer, you could focus on reducing stock shrinkage and theft, avoiding some discounting, and making sure you minimise obsolete stock. If you’re a contractor, you might focus on rework and wastage, ensuring all work and materials on jobs get billed, and team member productivity. We can help you to determine the best strategies to lift your margins. We can then run your figures through our Cashflow & Profit Improvement Calculator to show you the impact of seemingly small changes. Don’t let poor margins destroy your cashflow and working capital. Get some help from us to make a better plan.
Share by: