Property income treatment for new CT losses rules

Can trading losses incurred after 1/04/2017 be offset against property income for CT calculation

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My understanding is that the changes that were introduced few years ago relaxed the rules for offsetting trade losses against total corporate profit from all trades (other than the trade through which the losses were incurred).

My question is whether this relaxation would cover property income (whether through rental or through property development).

My relative is involved in a technology business that has so far generated significant trading losses all after 01/04/2017.

He would like to diversify his position to help the business survive longer (like all founders he doesn't want to give up) by investing in properties (buy to let and/or property development).

His accountant has advised him that he should set up a separate company to carry out the the property investment/trade.

I have advised him to investigate the possibility of using the same technology company to do so and explore the possibility of offsetting his losses of the last three years against total profit going forward.

Is this possible given the new rules or am I proving myself to be a dilettante when it comes to accounting?

Replies (7)

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paddle steamer
By DJKL
15th Dec 2020 16:52

If the company is to borrow for the BTL business how easy will this be in a company?

How easy will it be in a company showing (presumably) a negative balance sheet?

If the tech project is a hit and someone wants to buy the company will having these properties within it be helpful re the sale or a hinderance?

Is the Tech trade really carried on with a view to a profit? Can this be demonstrated via business plan/reasonable expectation etc?

Are the losses that significant to muddy issues with vat either now or in future (presuming residential properties the leasing of which is exempt) within the company?

Maybe the accountant has considered the above and a fair few other points when proffering his advice.

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Replying to DJKL:
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By pencillin
15th Dec 2020 17:04

Thanks for the swift response.

I appreciate all the points you have raised which were all considered. My question is really about the specific accounting point of offsetting losses against CT rather than how sound is the business decision itself. If I didn't have my own doubts that the tech side will succeed I wouldn't have put the effort to convince to minimise the impact of his 'gambler's fallacy'..

Thanks

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By daniel_
16th Dec 2020 09:46

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By Duggimon
16th Dec 2020 10:28

In this steadily loss making company you are proposing putting thousands of pounds worth of valuable assets.

I think I would also suggest the same thing as your relative's accountant.

If the losses are after April 2017 and genuine trading losses and the property trade was entered into through the same company then yes, the loss relief would be available, however that is not a good reason to put everything in one company and with all due respect to you, I would suggest your relative listens to his accountant.

The accountant may well have a plan as to how those losses could be utilised without putting otherwise sound investments at risk by bundling them up with a loss making business.

I would also second all of DJKL's points, he is a man of much experience in the area and those pitfalls will all have to be addressed.

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By pencillin
16th Dec 2020 15:51

Thanks a lot. I really appreciate the valuable feedback from both of you.

I agree that as a business decision muddying the water with properties will hinder the tech side in case it succeeds in a meaningful manner. When/if this happens, it might be a good problem to have as it means the tech side is now valuable enough to worry about it. However, in case the tech side founders completely, at least some of the losses could be offset which could mean saving money in the long run.

In any event, the technical accounting point should have a conclusive answer regardless of the circumstances above. The accountant was adamant that the losses cannot be offset rather than saying it's not a sound business decision. His position on this specific point seems to be factually wrong.

I believe every client should have the right to know all the facts before deciding. It is not the accountant's place to assume he should say it's not possible to veer his client's off what is presumably a bad business decision.

Thanks a lot for confirming that total profit could include property income when offsetting losses, it is now up to him to decide the best course of action.

Cheers

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Replying to pencillin:
paddle steamer
By DJKL
16th Dec 2020 16:00

Maybe Group Reliefs might be an avenue to explore with the paid accountant.

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Replying to pencillin:
paddle steamer
By DJKL
16th Dec 2020 16:27

Deleted duplicate

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