Claiming home as office expenses for landlords

Claiming home as office expenses for landlords

16:17 PM, 20th June 2012, About 12 years ago 3

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Many landlords run a property business from a home office but are scared to claim business expenses because they are worried about triggering a capital gains tax bill when they move house.

The myth is claiming tax relief for working from home makes part of the property business premises which is liable to capital gains tax when sold.

The reality is HM Revenue & Customs are more than happy to let landlords claim home as office expenses, provided the rules are followed.

Any landlord can claim an annual tax allowance of £208 – or £4 a week – without any questions asked and with no fear of capital gains tax.

Guidance for tax inspectors published by HMRC specifically instructs them not to investigate any of these claims.

For claims of more than £208 a year, a landlord needs to gather supporting evidence, like bills and receipts.

HMRC will accept the claim, providing the landlord can show the amount is reasonable and is no more than any additional household costs incurred by working from home.

The best way to make this claim is by apportionment – but the formula involves a little simple arithmetic.

Do not claim for a specific room set aside for business – that will alert HMRC that some capital gains tax may be due.

Instead, work out the average number of hours each week that several rooms are used for business – maybe three hours a day for the spare bedroom as an office and a couple of hours for business meetings in the living room.

Here comes the arithmetic – if your office is used three hours a day, five days a week, that is using that room for 15 hours out of an available 168 (24 x 7), that’s 9% of the week.

If that office takes up 10% of the floor area of the house and your home insurance is £450 a year, then that room is responsible for 10% of the cost of insurance of £450, which is £45.

As the room is used for 9% of the week, then that’s 9% of £45 = £4.05.

Work out the floor area of your home and each room used for business to calculate this. So, via that formula, the home insurance cost apportioned for your property business is £10.04 per year.

Crunch the numbers for other household costs in the same way, like phone and broadband, energy bills, council tax, repairs and maintenance.

Add them together, put the total in to the property pages of your tax return as ‘Other expenses’ and deduct the amount from profits to cut the tax paid.

Don’t ever claim less than £208 – it’s the magic number the taxman says you can have, so every landlord should claim the relief.

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Industry Observer

8:23 AM, 21st June 2012, About 12 years ago

I am no expert in this but there is a definite issue depending on how much of a residential property is turned over to business usage and to a degree what that bsiness is.
The issue is not so much capital gains tax because it is still the main residence
The issue you may find is more one related to planning and change of use - hence the relevance of space devoted to the business.
On a related note any Landlord has always been able to claim a modest amount against their allowances for managing their own properties as opposed to using an agent. This is typically £200 but not sure whether that is in allowances and hence only £40 saved off tax bill or £1000 and hence the £200 saved (assuming basic rate taxpayer)

9:26 AM, 21st June 2012, About 12 years ago

It is not obvious how you get from £4.05 to £10.04.
I'm guessing that it is including a calculation for the living room that is not shown.

9:30 AM, 21st June 2012, About 12 years ago

Is this £208 per 'business' or per person?
If per person, then how should it be apportioned between partners in the business?

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