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Terminal, Capital and Property Income Losses
When your company stops trading, sells assets at a loss, or makes a loss on rental income, you may be able to claim relief from Corporation Tax. Each type of loss has different rules about how and when you can use it to reduce your tax bill.
When your company stops trading, sells assets at a loss, or makes a loss on rental income, you may be able to claim relief from Corporation Tax. Each type of loss has different rules about how and when you can use it to reduce your tax bill.
Terminal losses: claiming relief when your company stops trading
Terminal Loss Relief helps companies recover tax when they cease trading. There are two types available, depending on when the losses arose.
Relief for losses in the final 12 months
If your company stops trading, you can carry back any trading losses that occur in the final 12 months and offset them against profits from the same trade made in the previous 3 years.
You must offset losses against the most recent years first, before carrying them back to earlier years. For each year, you can only claim relief against profits from periods when your company was carrying on the same trade.
If any of the earlier accounting periods are shorter than 12 months, or if your accounting period end date has changed, you'll need to apportion the profit. The loss can only be offset against the portion of profits falling within the 3-year period.
Relief for carried-forward losses from 1 April 2017
If your company stops trading on or after 1 April 2017, you may also claim Terminal Loss Relief for trade losses that were carried forward to the final accounting period.
This relief gives additional help to companies that couldn't fully use their carried-forward losses in the final 3 years due to restrictions that normally apply from 1 April 2017.
Carried-forward losses can be used to reduce profits of the final accounting period and earlier periods up to 3 years before the end of that final period. These losses must also be offset against the most recent years first.
Important: The 3-year period for carried-forward losses is different from the period for losses incurred in the final 12 months.
For example, if your company's final accounting period and final 12 months of trade run from 1 January 2025 to 31 December 2025:
- Losses incurred in the final 12 months can be carried back to the period 1 January 2022 to 31 December 2024
- Carried-forward losses can be used against profits from 1 January 2023 to 31 December 2025
You can only use each carried-forward loss against profits from periods after the period when that loss was originally sustained—not the period when it occurred or any earlier periods.
Anti-avoidance rules
You cannot claim Terminal Loss Relief if the trade is transferred to another person and the sole or main reason for the transfer is to obtain the relief.
How to claim Terminal Loss Relief
You can make your claim in your Corporation Tax return, in an amendment to the return, or by letter. You can send it with your return or post it separately to HMRC.
Your claim must include:
- Your company name
- The period when the loss was made
- The amount of the loss
- How the loss is to be used
If you've already paid Corporation Tax for any of the earlier 3 years and offsetting your loss reduces your liability for those periods, you may receive a repayment.
Time limits for Terminal Loss Relief claims
For losses in the final 12 months: claim within 2 years of the end of the accounting period when you made the loss.
For carried-forward losses: claim within 2 years of the end of the accounting period in which trading stopped.
Capital losses on asset disposals
When your company sells or disposes of a capital asset (such as property, equipment, or investments) and makes a loss rather than a gain, this creates a capital loss.
Capital losses are treated completely differently from trading losses. You cannot offset capital losses against trading income or other types of profit.
Allowable capital losses are set off automatically against capital gains your company makes.
Property income losses
If your company earns rental income from letting out business premises or other property, it may sometimes make a loss on this activity.
Property income losses follow their own set of rules:
Current period: You must offset property income losses against other profits in the same accounting period first.
Cannot carry back: Unlike terminal trading losses, you cannot carry property income losses back to earlier accounting periods.
Carry forward: If the loss cannot be fully used in the same period and has not been used as group relief, you can carry it forward to offset against other profits in the next accounting period—but only if your company is still carrying on the property business in that period.
Group relief: If your company is part of a group, property income losses can be offset against profits of other group members in the same accounting period, but only if the losses exceed your own company's profits for that period.
Restrictions from 1 April 2017
For accounting periods beginning on or after 1 April 2017, there are restrictions on the total amount that can be relieved using carried-forward UK property income losses.
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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