We have a small one-bed BTL flat near us in the Home Counties. Rental income is modest, around £8,400 a year gross. After allowable expenses (management fees, insurance, mortgage interest at the new tax credit rate, repairs) the taxable profit has been negligible the last couple of years and we’ve accumulated about £1,200 in carried forward losses from 2022/23 when we had a new boiler put in.
I’ve been looking at the £1,000 property allowance as an alternative to claiming actual expenses. For 2024/25 the gross rent is low enough that claiming the allowance would give a slightly simpler return, but I’m not clear on what happens to the carried forward losses if I switch. Do they just sit there unused until I go back to the normal basis, or do I lose them entirely?
Also wondering whether using the property allowance in one year locks you in for subsequent years or whether you can flip back and forth. HMRC guidance on this is thin, or at least I haven’t found the right page.
Appreciate this is fairly niche. Would rather check here before paying an accountant to tell me something obvious.
I’ve been reading up on something similar (although mine’s about the rent a room scheme rather than a proper BTL) so i could be wrong on some of this, but my understanding is that the £1,000 property allowance and the carried forward losses are two separate regimes and you can’t really mix them. If you claim the property allowance you’re basically saying your first £1,000 of property income is tax free and you don’t deduct any expenses at all against that income, which i think means you can’t also use your carried forward losses in the same year because those losses only reduce your taxable profit after expenses have been deducted (and you haven’t deducted any).
So i think the question is whether it’s better to claim the £1,000 allowance and effectively park the losses for another year, or to declare your income normally, deduct your expenses, and then use the carried forward losses to reduce whatever’s left. Given your expenses are around £6,800 against £8,400 income that would leave you with about £1,600 profit which the losses would wipe out anyway. So it probably doesn’t matter much in practice but i could be wrong on whether the losses carry forward indefinitely or expire. Might be worth checking the HMRC guidance on that specific point. Thanks for posting this though, it’s made me think about my own situation.