Often, yes. A development company can set a trading loss against its other profits of the same year, then carry it back 12 months and reclaim corporation tax it has already paid. If the trade stops, the final year's loss can go back three years. Inside a 75% group, a sister company can use the loss instead.

Key facts

  • A company can set a trading loss against total profits of the same period, then carry it back against profits of the previous 12 months[1].
  • The claim must be made within two years of the end of the loss-making period[2].
  • On cessation, a loss from the final 12 months can be carried back against profits of the previous three years[3].
  • Group relief needs a 75% group: one company a 75% subsidiary of the other, or both 75% subsidiaries of a third[4].
  • Carried-forward losses above a £5 million deductions allowance can only cover 50% of later profits[5].

Why do development losses arrive at the worst time?

A development loss usually shows up at the end. The sales complete below appraisal, or the last units sit unsold and have to be written down. By then the company may have paid corporation tax in full on the profitable scheme before it.

The question is whether that tax can come back. For a trading company, it often can. But the route depends on how the company is set up and when the trade stops.

How does a 12-month carry back work?

The loss is first set against the company's total profits of the same accounting period. Any loss left can then be carried back against total profits of the previous 12 months[1]. Periods falling wholly or partly in that 12-month window count, with a part period apportioned[6].

The claim is not automatic. It must be made within two years of the end of the loss-making period[2]. The result is a repayment of corporation tax already paid, or a lower bill still due.

What if the company stops trading after the scheme?

Many developers use one SPV per scheme. Once the last flat sells, the trade stops. That opens terminal loss relief. A loss from the final 12 months of trading can be carried back against profits of the three years before the loss period[3].

That longer window helps a company that made profits on earlier phases. It doesn't help a single-scheme SPV that never made a profit. In that case the loss has nowhere to go inside the company.

Losses already carried forward from earlier years can also be relieved on cessation, against profits of the three years ending with the final period[7].

Can a sister company use the loss instead?

Yes, if the two companies are in a 75% group. One must be a 75% subsidiary of the other, or both must be 75% subsidiaries of a third company[4]. The loss is surrendered for the period the two companies have in common[8].

That's why the group structure matters before the loss arrives. Two SPVs owned personally by the same director are not a group for this purpose. We cover the detail in our post on group relief for property SPVs.

What happens to a loss that is carried forward?

A trading loss made from 1 April 2017 that is carried forward can generally be set against the company's total profits of later periods[9]. So a developer that keeps the same company for its next scheme can use the loss against that scheme's profit.

There is a cap for large users. Once carried-forward losses exceed a deductions allowance of £5 million, they can only cover 50% of the remaining profits[5]. Most regional developers won't reach it.

Worked example

All figures are invented. A development company has no associated companies and prepares accounts to 31 March.

Year to 31 March 2026: the first scheme makes a profit of £600,000. Corporation tax at the 25% main rate is £150,000[10].

Year to 31 March 2027: the second scheme sells into a weaker market and makes a trading loss of £250,000. The company has no other income that year.

The claim: the loss is set against the current year first. Nothing to absorb. The £250,000 is then carried back against the £600,000 profit of the previous 12 months[1].

Result: the revised profit for 2026 is £350,000. That's still above £250,000, so it is all taxed at 25%. The bill falls to £87,500 and HMRC repays £62,500.

The deadline: the claim must be made by 31 March 2029[2].

Our view

The structure you pick at the start decides where a loss can go at the end. One SPV per scheme keeps the risk ring-fenced, but a stand-alone SPV that loses money on its only scheme has nothing to set the loss against. Put the SPVs under a holding company and a sister company can use the loss in the same period.

If a scheme looks like it will lose money, talk to us before the last sale completes. Timing the end of the trade and the accounting date can decide whether you get one year of carry back or three.

Common questions

Can a development company carry a loss back more than one year?

Normally only 12 months[1]. When the trade stops, a loss from the final 12 months can go back three years[3].

Is loss relief given automatically?

No. The company must claim, within two years of the end of the loss-making period[2].

Can a director use the company's loss against personal income?

No. A company's trading loss stays inside the corporation tax system. It can only be used by the company or, through group relief, by another company in the same 75% group[4].

Does a loss from an old scheme help the next one in the same company?

Usually, yes. Losses made from 1 April 2017 that are carried forward can generally be set against later total profits[9], subject to the £5 million deductions allowance[5].

Sources

  1. HMRC Company Taxation Manual CTM04505: trading losses, relief against total profits (CTA 2010 s37). www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm04505
  2. HMRC Company Taxation Manual CTM90610: claims and elections, time limits. www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm90610
  3. HMRC Company Taxation Manual CTM04520: terminal losses on cessation of trade (CTA 2010 s39). www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm04520
  4. HMRC Company Taxation Manual CTM80151: group relief, the 75% group test (CTA 2010 s152). www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm80151
  5. HMRC Company Taxation Manual CTM05010: restriction on relief for carried-forward losses. www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm05010
  6. HMRC Company Taxation Manual CTM04510: relief against preceding accounting periods. www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm04510
  7. HMRC Company Taxation Manual CTM04130: terminal relief for carried-forward losses (CTA 2010 s45F). www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm04130
  8. HMRC Company Taxation Manual CTM80225: group relief, the overlapping period. www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm80225
  9. HMRC Company Taxation Manual CTM04100: relief for trading losses carried forward. www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm04100
  10. GOV.UK: Corporation Tax rates and allowances. www.gov.uk/corporation-tax-rates
About the author

Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here. Please take advice before acting on anything above.

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