Manage loss claims for MTD for Income Tax if you’re a landlord

This article explains how landlords can add and edit loss claims for Making Tax Digital (MTD) for Income Tax using FreeAgent. It also explains how to manage brought forward losses.

If you’re a sole trader, read how to manage trading loss claims for MTD for Income Tax.

If you make a loss for tax purposes in any one year (if your allowable costs outweigh your income), you may be able to use that loss to reduce your tax bill in some way. Using a loss to reduce your tax bill is called 'loss relief'.

You may be able to set the loss against other income you've received in the same year (for example, salary from a job) and claim back tax you've already paid. You may be able to carry the loss back against income from previous years or you can carry the loss forward to set against future profits from your property rental.

The rules around when each kind of loss relief can be used are complex, especially as losses can be treated differently for tax and National Insurance. If you've made a loss and you're not sure how you can claim relief on it, please speak to your accountant. If you’re not currently working with an accountant, you may wish to find one through FreeAgent CoPilot.

Managing losses for MTD for Income Tax

Navigate to the ‘Taxes’ tab at the top of the screen and select ‘Income Tax’ from the drop-down menu.

Select the relevant tax year from the list.

Select the ‘Losses’ tab.

If it’s the first year that you’re using MTD for Income Tax, you can add brought forward losses for losses that you incurred before signing up for MTD for Income Tax. If it’s not your first year of using MTD for Income Tax or you’re not adding brought forward losses, you can add loss claims for the current tax year.

Managing brought forward losses

If you're moving to MTD and you had a property rental loss carried forward from your last Self Assessment return, you’ll need to add the brought forward loss to your MTD for Income Tax submission as it won’t be carried over by HMRC to the new system.

To add brought forward losses, select ‘Yes’ under ‘Do you want to manage your brought forward losses?’ and select the ‘Add a brought forward loss’ button.

Property income stream

First, choose which business you want to add the brought forward loss for from the ‘Business’ drop-down menu. If you have multiple businesses signed up to MTD for Income Tax, read how to use FreeAgent for Making Tax Digital (MTD) for Income Tax for multiple businesses.

Type of loss

Next, choose which type of loss you want to add from the ‘Type of loss’ drop-down menu.

For property rental income, you can choose between:

• ‘UK Property’ - if you’re bringing the loss forward on UK properties other than those that formerly qualified as Furnished Holiday Lets (FHLs) and want to use it to reduce the profit you pay tax on for your UK property income in the current tax year.
   
• ‘UK Property (FHL)’ - if you’re bringing forward a loss made on a former Furnished Holiday Let (FHL) property to use against your property income in the current tax year.

Finally, enter the amount of the brought forward loss you want to add in the ‘Loss amount’ field.

Select ‘Create’ to add the brought forward loss. Repeat these steps for each business you want to add a brought forward loss for.

You can edit the brought forward loss by selecting the 'Edit' button on the right, or delete it by selecting the red ‘X’ next to it.

Managing loss claims for the current tax year

To add a loss claim for the current tax year, select ‘Yes’ to ‘Do you want to manage your loss claims for this tax year?’ and select the ‘Add a loss claim’ button.

Property income stream

First, choose which business you want to add the claim for from the ‘Business’ drop-down menu. If you have multiple businesses signed up to MTD for Income Tax, read how to use FreeAgent for Making Tax Digital (MTD) for Income Tax for multiple businesses.

Type of claim

Next, select which type of claim you want to add from the ‘Type of claim’ drop-down menu.

Landlords can choose between ‘Carry Sideways’ and ‘Carry Forward to Carry Sideways’.

Carry Sideways

Use this if you want to use losses from this income stream and use them against a different income source in the same year. This would be useful if you made a loss on your property income this year and also have other income on which you've already paid tax, in the same year.

Please note that property rental income losses can only be carried sideways if the loss relates to capital allowances (which landlords can only claim in rare circumstances) or agricultural expenses. There are also restrictions on how much property rental loss a landlord can carry sideways relating to the individual's overall level of income and the property income within that. If you’re unsure whether you can carry a loss sideways, please speak to your accountant.

Carry Forward to Carry Sideways

Use this if you want to carry property losses forward and use them against a different income source next year.

Type of loss

Finally, choose the type of loss you want to add from the ‘Type of loss’ drop-down menu.

Select ‘Create’ to add the loss claim. Repeat these steps for each loss claim you want to add.

You can edit the loss claim by selecting the 'Edit' button on the right, or delete it by selecting the red ‘X’ next to it.

Reordering carry sideways losses

If you’ve added multiple Carry Sideways loss claims, you can choose which order the losses get used in.

Select ‘Reorder Carry Sideways loss claims’.

You can move the loss claims up or down the list by dragging and dropping them.

Once you’re happy with the order the losses will get used in, select ‘I’ve finished reordering’.