Many Landlords assume that if their rental property “makes a loss”, there is nothing to report.
Others forget that losses can build up over several years — and end up wasting valuable Tax relief.
This guide explains exactly how rental losses work in 2025, when you can carry them forward, and the rules HMRC apply for Individuals, Partnerships, and overseas Landlords.
It covers:
- What counts as a rental loss
- How losses are calculated
- The strict HMRC rules on how losses can be used
- When losses cannot be carried forward
- Overseas Landlord loss restrictions
- Common mistakes Landlords make
🎥 If you prefer to watch rather than read, here is the full video guide.
You can now continue with the full written guide below.
Let’s break it down.
1. What Is a Rental Loss?
A rental loss happens when:
Allowable rental expenses are more than the Rental income
Common causes include:
- High repairs in a given year
- Mortgage interest making the numbers tight
- Service charge spikes
- Property being empty
- One-off legal or eviction costs
- High Agent fees
A loss is not the same as “negative cashflow”.
Losses are calculated based on Tax rules, not just bank activity.
You can also read my guide on What Landlords Can and Can’t Claim, which explains Repairs vs Improvements in more detail.
2. How Rental Losses Are Calculated
Losses are calculated using allowable expenses only, including:
- Repairs and Maintenance
- RDE replacements
- Service charges and Ground rent
- Insurance
- Letting Agent fees
- Legal fees for eviction/debt recovery
- Mortgage interest restricted to a 20% tax credit, so it does NOT create or increase a tax loss
- Travel/Mileage
- Accountant fees
- Utilities where Landlord pays
👉 Mortgage interest cannot create a tax loss.
It is dealt with separately through the tax credit — something many Landlords still get wrong.
3. What You Can Do With Rental Losses
✔ You can carry rental losses forward indefinitely
There is no expiry date.
✔ They can only be used against future rental profits
Not against:
- Salary
- Dividends
- Self-employment
- Partnership profits
- Capital gains
✔ They apply to your entire property “business”
Losses from one property can offset future profit from any of your properties.
✔ They carry over automatically
You do not need a special claim — but you must report the loss in the Tax Return for the year it arose.
4. When Losses Cannot Be Used
HMRC will not allow losses to be used if:
✘ The loss was never reported
Losses must appear in your Self Assessment Return for the year they occurred.
✘ The landlord has not registered for Self Assessment
Unreported years lose the ability to carry losses forward.
✘ Losses arose from Capital Improvements
Upgrades, Extensions, or Improvements do not create rental losses.
✘ Losses arose due to Personal-use periods
Periods where you or a family member lived in the property cannot generate losses.
✘ The property business has stopped
If you stop being a Landlord entirely, any unused rental losses are lost.
5. Overseas Landlords: Special Rules
If you have property abroad:
✔ You calculate losses using UK rules
Even if the foreign country has different tax treatment.
✔ Losses can be carried forward
Against UK-taxable rental profits from that foreign property or your UK properties (depending on the Tax treaty and ownership structure).
✘ But Foreign Tax paid does not create or increase a loss
Foreign Tax is dealt with via Foreign Tax Credit Relief, not rental loss rules.
👉 For a full explanation, see my article on How Foreign Income Is Taxed In The UK.
6. Common Mistakes Landlords Make
I see these repeatedly:
- Thinking Mortgage Interest creates a Tax loss (it doesn’t)
- Not reporting losses because “there was no tax to pay”
- Losing historic losses because Self Assessment wasn’t filed
- Classifying Capital Improvements as Repairs
- Claiming losses while the property was empty for personal use
- Forgetting RDE rules
- Believing overseas losses work differently
Most of these can be fixed — but not if the year has already closed.
I also have a guide on Why Assumptions with HMRC often Backfire, especially when dealing with rental properties.
7. Examples (Simple & Clear)
Example 1 — Loss used next year
Year 1: £1,500 rental loss
Year 2: £3,000 rental profit
You only pay tax on £1,500 (£3,000 – £1,500).
Example 2 — Mortgage interest confusion
Income: £8,000
Repairs + costs: £8,200
Mortgage interest: £5,000
Tax loss = £200, not £5,200.
The Interest becomes a 20% tax credit separately.
Example 3 — Property sold
If you sell all properties and stop being a Landlord, unused losses disappear.
8. When to Get Support
You may need help if:
- You have several years of losses
- You’re unsure whether something is Capital or Revenue
- You haven’t filed Returns for past years
- You have Overseas rental income
- Your Mortgage interest is high relative to rent
- HMRC has sent a letter or made enquiries
A structured review ensures losses are calculated correctly and carried forward without being lost.
Final Word
Rental losses are valuable — but only if reported properly.
Once claimed, they can reduce future tax bills significantly.
If they’re not reported, they simply disappear.
If you’d like help reviewing your rental position for 2025, you can contact me to discuss the next steps.