Should I declare my rental losses?

Question Last year I purchased two investment properties. However I am currently making a loss on them as I have a low yield and the expenses are greater than the income. Should I declare this loss to the Inland Revenue?

What happens if I don't declare the loss?

Ian Says
You have an obligation to report a new source of income to the Inland Revenue by 6 October following the year in which the source of income first arose.

Assuming that the income first arose in 2003/04, you have until 6 October 2004 to report this source of income to the Revenue and until 31 January 2005 to file a tax return showing the income and expenditure for the year.

It is always a good idea to declare the loss as this can be carried forward and used against future profits of the rental 'business', whether this be the same or different properties.

If you do not declare the loss and start making profits several years later and then declare the profit, you will lose out on being able to offset the losses against the profits and hence will pay more tax.

Also, if the Revenue discovers that you have had rental income then you may find it difficult to prove several years later that the expenses were as high as you say they are unless you have kept full records.

Therefore you may end up paying tax, interest and penalties on a profit that you never incurred.