Can I offset the loss incurred in year two against income earned in year one?

View All Questions View Questions From:

Can I offset the loss incurred in year two against income earned in year one?

Question

In year one, I earned income from a house sale, but made a loss from a house sale in year two. Can I offset the loss incurred in year two against income earned in year one, or alternatively any income that is earned in year three?

 

Arthur Says

It is possible to carry losses forwards and not backwards in different tax years. This means that if there has been any tax due when the profit was made from the first house sale, then tax will still
need to be paid. The losses that have been incurred on the sale of the second property should be registered with the Inland Revenue and can be offset against any future profits.

However if the sale of the first property was on or after 6th April in one year and the sale of the second property was on or before the 5th April in the following year then you can offset the losses from the second sale against that of the first sale as they both fall in the same financial tax year.

Consider the following two case studies:

 


 
Case Study

Case Study 1: Alex Sells Property A on 10th April 2005 and makes a £40,000 pre-tax profit. He also sells Property B on 5th April 2006 for a £40,000 loss. The 2005-2006 tax year runs from 6th April 2005 to 5th April 2006. This means because both properties have disposed within the same 2005-2006 tax year Alex can offset the losses against from Property B against the gains from Property A and therefore incurs no tax liability.

Case Study 2: Alex Sells Property A on 10th April 2005 and makes a £40,000 pre-tax profit. He also sells Property B on 10th April 2006 for a £40,000 loss. The first property has been sold in the 2005-2006 tax year, but the second property has been sold in the 2006-2007 tax year, as it is after 5th April 2006.

This means that he cannot offset the losses from property B against the profit from property A. Therefore if Alex is a 40% tax payer then he will be liable to pay tax of £16,000 on the £40,000 profit.

 

 

About Arthur Weller

Over 350 consultations successfully completed by Arthur though this site!
Arthur Weller is a Chartered Tax Advisor (CTA) and an integral part of the Property Tax Portal team. He offers a special rate tax advisory service on any aspect of UK taxation, including property taxation, for as little as £97 for a 30 minute telephone tax consultation.

Key Facts:

- Over 90% of queries are answered within 30 minutes and within 3 days!
- Over 300 consultations done by Arthur through this website!
- You pay for the advice after it has been given

Here is what one of our customers had to say:

“Arthur contacted me the next day.  He phoned promptly and offered me clear and concise advice which he referenced to the HMRC website, taking me through section by section and explaining the implications each step of the way. 

He also sent me an MP3 recording of the session so that I was able to absorb the information more fully.  I am extremely impressed by his professionalism. Money very well invested as his advice will save me thousands of pounds.  I wholeheartedly recommend his services.

Thank you very much.” V. Loughery


To learn more about this service click here.

Ask a Question