What happens to rental losses when you incorporate

Q: How does this work in practice?

Illustration only. Jo has £20,000 of property losses brought forward at 6 April 2026. Her portfolio makes £8,000 of profit between 6 April and 30 September 2026, and on 1 October 2026 she transfers all four properties to her new company. Her business ceases on that date. The £8,000 is covered by losses, leaving £12,000. In February 2027 she receives £1,500 under a rent guarantee policy for arrears from before the transfer; it is a post cessation receipt and £1,500 of losses covers it. The remaining £10,500 is lost. Had Jo kept one flat making £6,000 a year, her business would have continued and the £12,000 would have been used over the next two years, but she would have needed to check whether any gains on the three properties transferred would then be taxable without incorporation relief.

Q: What mistakes come up most often?

Carrying personal losses into the company's first return. They belong to you, not the company. Claiming the section 86 relief. It applies only to trades, professions and vocations. Keeping a property just to save losses. Weigh the losses against the capital gains cost of losing incorporation relief. Forgetting post cessation receipts. Late insurance payouts and recovered debts can still absorb old losses. Losing track of the figures. Keep a record of losses brought forward and used each year in case HMRC asks; general rules are in rental losses. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Unused rental losses stay with you when your properties move into a company. Section 118 of the Income Tax Act 2007 (ITA) gives relief to the person who made the loss, by deduction from that person’s later profits of the same property business, and a company is a different person starting its own business. If you transfer every property your business ceases, and the losses can then only be set against post cessation receipts, because there is no property equivalent of the relief traders get under section 86 ITA.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

Why can’t the company use my losses?

Section 118 ITA says relief is given to a person who carries on a UK or overseas property business and makes a loss in it, by deducting the loss in calculating that person’s net income for later tax years, and only from profits of that business. HMRC’s Property Income Manual at PIM4210 confirms that property business losses can only be set against profits of the same property business and cannot be carried forward after it ceases.

A company is a separate taxpayer. Its letting is its own property business within the Corporation Tax rules (PIM1020 refers to section 205 of the Corporation Tax Act 2009 for companies), so it starts with no losses of its own. Even an individual acting in a different capacity, for example as a partner or a trustee, has a separate property business and cannot use their personal losses there (PIM1020 and PIM4210). How a company’s own property losses work is covered in company property business losses.

Does my property business stop when the properties move?

Only if everything goes. PIM2510 explains that a property business normally ceases when the last let property is disposed of or starts to be used for another purpose. Its example is a landlord who built up fifty properties and sold forty nine: the business continues until the last one is sold or stops being let. A person acting in the same capacity can only have one property business, so a change in scale is not a cessation.

So the answer depends on what you transfer. Move the whole portfolio and your business ceases on the date of the transfer. Keep even one let property in your own name and the business carries on, with the losses available against its future profits under section 119 ITA. See starting and ending a property business for how cessation is judged.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

Can the losses be set against income from the company, as for sole traders?

No. Section 86 ITA helps an individual who transfers a trade to a company wholly or mainly for shares: income they derive from the company, such as dividends, is treated as profits of the trade for carry forward trade loss relief. That relief sits in Chapter 2 of Part 4 of ITA, and section 83 limits carry forward trade loss relief to losses made in a trade, profession or vocation. Property business losses are relieved instead under Chapter 4 (sections 117 to 127C), whose provisions cover carry forward, relief against general income, post cessation property relief and anti avoidance rules, with nothing equivalent to section 86. The trading version is explained in sole trader losses after incorporation.

How can unused losses still be used?

Against profits up to the transfer

Brought forward losses are deducted automatically from the business’s profits of each year before any other relief (sections 118(4) and 119). In the tax year of transfer, the profits earned up to the date the business ceases absorb losses first.

Against post cessation receipts

PIM3000 explains that a receipt arising after a property business has ceased, if not already included, is taxed under section 349 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA). Section 351 applies the trading rule in section 254, which allows a deduction for a loss that would have been set against the profits had the business continued. PIM3000 states plainly that unrelieved carried forward losses can be deducted from post cessation receipts. HMRC’s examples are an insurance payout under a rent guarantee policy and a recovered bad debt previously written off.

Against general income, for the capital allowances part

Section 120 ITA allows the part of a loss that has a capital allowances connection, or arises from a business with a relevant agricultural connection, to be set against general income of the loss year or the next year. The claim must be made by the first anniversary of the normal Self Assessment filing date for the year specified (section 124). This rarely helps a residential landlord, but can matter for commercial lettings with plant; see capital allowances for landlords.

By keeping some properties

Retaining part of the portfolio keeps the business and the losses alive. The catch is incorporation relief. Section 162 of the Taxation of Chargeable Gains Act 1992 applies only where the business is transferred as a going concern together with the whole of its assets, or the whole except cash, and HMRC’s Capital Gains Manual at CG65710 repeats that all assets other than cash must be transferred. Because all your personal lettings form one property business (PIM1020), keeping a property back generally means that condition fails and any gains on the transferred properties are chargeable. Whether the relief could apply at all is discussed in incorporating a property portfolio.

What about costs I pay after the transfer?

That is a different relief. Under section 125 ITA, a person who has permanently ceased a UK property business can claim post cessation property relief for qualifying payments made within 7 years of cessation, against general income of the year of payment. Section 97, applied by section 125(6), limits qualifying payments to remedying defective work or paying damages for it, legal and professional costs of claims about defects, insurance against such claims, and costs of collecting debts brought into account in the business. The claim must be made by the first anniversary of the normal filing date for the year (section 125(4)), and section 126 allows any unused excess to be treated as a capital loss. It does not revive old losses.

Can I start letting again later and use the old losses?

Normally not. PIM2510 says that where a business ceases and a new one starts later, losses of the first cannot be set against profits of the second. As a rule of thumb HMRC treats the old business as stopped where there is a gap of more than three years and different properties are let before and after. Buying a new flat in your own name a year after incorporating, having sold or transferred everything else, is likely to be treated as a new business.

How does this work in practice?

Illustration only. Jo has £20,000 of property losses brought forward at 6 April 2026. Her portfolio makes £8,000 of profit between 6 April and 30 September 2026, and on 1 October 2026 she transfers all four properties to her new company. Her business ceases on that date. The £8,000 is covered by losses, leaving £12,000. In February 2027 she receives £1,500 under a rent guarantee policy for arrears from before the transfer; it is a post cessation receipt and £1,500 of losses covers it. The remaining £10,500 is lost.

Had Jo kept one flat making £6,000 a year, her business would have continued and the £12,000 would have been used over the next two years, but she would have needed to check whether any gains on the three properties transferred would then be taxable without incorporation relief.

What mistakes come up most often?

Carrying personal losses into the company’s first return. They belong to you, not the company.
Claiming the section 86 relief. It applies only to trades, professions and vocations.
Keeping a property just to save losses. Weigh the losses against the capital gains cost of losing incorporation relief.
Forgetting post cessation receipts. Late insurance payouts and recovered debts can still absorb old losses.
Losing track of the figures. Keep a record of losses brought forward and used each year in case HMRC asks; general rules are in rental losses.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.