Expenses for office run from home

[Miffy]

According to the Business Income Manual, one can deduct expenses for a home office from rental profits, including general repairs to the fabric of your home (apportioned appropriately).

I have replaced some rotten windows in my home (including one in the room that is used as an office). I am not clear whether I can/should claim for just the window in the office, or instead for all the windows (reduced in proportion to the relative area of the home office).

Also, since I had to repair some fences in the recent gales, can any of that be offset? The question seems to come down to whether this is "general repairs to the fabric of the building" or whether its a repair to a specific part of the home (the garden) which is not used for business. I am guessing the latter but would be grateful for any advice/experience.

[jeffrey]

According to the Business Income Manual, one can deduct expenses for a home office from rental profits, including general repairs to the fabric of your home (apportioned appropriately).

I have replaced some rotten windows in my home (including one in the room that is used as an office). I am not clear whether I can/should claim for just the window in the office, or instead for all the windows (reduced in proportion to the relative area of the home office).

Also, since I had to repair some fences in the recent gales, can any of that be offset? The question seems to come down to whether this is "general repairs to the fabric of the building" or whether its a repair to a specific part of the home (the garden) which is not used for business. I am guessing the latter but would be grateful for any advice/experience.

For a trade or business, expenses which you seek to deduct are allowable only if wholly and exclusively for purposes of business. Garden fences aren't, but the window of your home office (not other windows) probably is.

[TaxationPete]

Take care with this is HMRC would not envisgae the office being solely used for your rental business unless you have a huge number of rental properties. In addition to which declaring the office solely for business requires the permission of the mortgage provider and that area of the property by proprtion to the rest of the house will attract CGT when you sell the property as it will be excluded from your PPR as it was solely for business nor residential use.. Regards Peter

[Miffy]

Hmm-interesting that HMRC might not like one claiming. Presumably, the fact that you don't have the mortgage company's permission to have a home office is not a matter for HMRC though?!? Good point about cgt effect...although I wouldn't be too worried over a couple of years, it could add up long term.

However, according to BIM 47815, http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm it should be allowable to claim a proportion of household repairs etc even if the home office is NOT EXCLUSIVELY for business-the amount depending on the usage of the room for business vs private use. There are a few complex examples which seem to apportion heating & lighting according to actual use and fixed costs according to availability. Following these rules logically it would appear that a home office where one does all the work normally performed by an agency in managing property and very little other use is made of it should attract a healthy proportion of fixed cost relief divided by area of the house? Or can they just toss away their own rule book if it suits them?

[TaxationPete]

Be carefull. Declaring business use without the mortgage providers permission is not wise. Usually they give permission without a problem or charge, as the offise is for sole use, i.e. you are not inviting other stangers into your property, like a consultant or theropist. Also insurance can be invalidated by the business use without permision. And don't think, well how would they find out ??, just get permision if you are really going to declare an office area. You can claim a services allowance for heating and lighting the office without declaring the office for sole use, from memory it is now a portion of £5 per week. I would not want any of my clients to wave a red flag in front of HMRC for a few quid a week and expose your self to apportioned CGT on your home. Regards Peter

[Miffy]

Thanks for your input, as always.

I am intrigued that you feel HMRC would view claiming proportional home office costs (as per the BIM page quoted) as some sort of impudent challenge. Of course, you are the one with the experience and I respect that so I guess you are right. However, I cannot understand why they clearly state in their own BIM that proportions of fixed costs such as repairs, council tax, mortgage interest etc etc are allowable (even when there is not exclusive use of the room for business) if they do not in fact intend to accept this. Its in their own rule book! They even have an example of a woman using her lounge(!) for 4 hours claiming proportional fixed and variable costs. She can even claim proportionately for decorating the lounge...

Basically, I guess what I am saying is that I have read the rule book and am a little disappointed that it seems it was not worth my time (in my home office, on my business asset computer;) )to have done so, if in fact it carries no authority.

[TaxationPete]

You are quite entitled so set an office up and cover it's costs and maintenance if for sole use. Use of phone, Internet connection, ligthing, rates, etc. etc. etc. And they will be allowed However this will, as has been detailed, expose that proportion of the house, by area, to a potential CGT charge then you move so it is a bit of swings and roundabouts. However if you just establish a sensible charge for your office costs and do not charge a % of the rates and Mortgage interest then there is not a CGT problem. Some hair dressers and therapist do set this this up as a dedicated work area and cover all costs. Regards Peter

[MR M]

You are quite entitled so set an office up and cover it's costs and maintenance if for sole use. Use of phone, Internet connection, ligthing, rates, etc. etc. etc. And they will be allowed However this will, as has been detailed, expose that proportion of the house, by area, to a potential CGT charge then you move so it is a bit of swings and roundabouts. However if you just establish a sensible charge for your office costs and do not charge a % of the rates and Mortgage interest then there is not a CGT problem. Some hair dressers and therapist do set this this up as a dedicated work area and cover all costs. Regards Peter

What cost would HMRC deem to be a sensible charge for a Buy to Let landlord with say 3 properties that they fully self-manage ie draft up own tenancy agreements and iventories, deals face to face with tenant ie no managing agent acting as middleman.

If you then submit that figure on your tax return, could they ask you for proof of how you have arrived at the cost and if they did, how would you accurately quantify it to them?

[stephenp]

HMRC now state that everyone can claim at least £2 per week for home office as a minimum. depending on the size of you office in relation to your house and if it carries any other use other than the letting business is dependant on what your claim can be. if it is 5% of the total area the then 5% of running costs can be claimed - then if used for 50% personal i would cut it in half. To cut out all the workings the average is around £10 per week.
In relation to CGT, if you are claiming only £10 per week on the office it will take many years before you use up your annual CGT allowance - not an issue i wouldnt say as at least you will be getting your tax relief now and using up your CGT allowance before paying any tax in the future.

[TaxationPete]

http://www.hmrc.gov.uk/manuals/bimmanual/BIM47800.htm

Regards Peter

[stephenp]

Pretty much as i answered then!

[Tax Accountant]

According to the Business Income Manual, one can deduct expenses for a home office from rental profits, including general repairs to the fabric of your home (apportioned appropriately).

I have replaced some rotten windows in my home (including one in the room that is used as an office). I am not clear whether I can/should claim for just the window in the office, or instead for all the windows (reduced in proportion to the relative area of the home office).

Also, since I had to repair some fences in the recent gales, can any of that be offset? The question seems to come down to whether this is "general repairs to the fabric of the building" or whether its a repair to a specific part of the home (the garden) which is not used for business. I am guessing the latter but would be grateful for any advice/experience.

(1) At best you can only claim for the cost of the window in the home office. But this should be further reduced to take account of (1) Length of time office has been used for lettings business as a proportion of time it has been owned, and (2) proportion of time used for lettings business as a proportion of total time available for use.

I am sceptical how much you could geniunely claim but it really depends on the scale of your lettings business and the amount of time you spend in your ''office'' on ''lettings business''.

(2) Forget about the garden fence.

(3) Some people have mentioned figures of £2 and £10 etc. I am not sure of what the basis is of these figures.

(4) If the manual allows an expense, and you are not manipulating it unreasonably, HMR&C would not necessarily challenge it for the sake of challenging it. If you are in the right, you have nothing to fear.

It is always a case of being sensible and reasonable about claiming expenses, where it has a dual purpose. You should always use the additional information box in tax returns to explain where you are coming from and in my experience this will result in less challenges rather than more. It will convey to the tax office that you have a basis for the amount claimed and just picked it out of thin air.

(5) This is what the Property Income Manual says:

''Owner occupied property:

Expenditure on a house, flat or other property that the landlord occupies himself or herself isn’t normally allowed as a deduction in computing rental business profits because it does not satisfy the ‘wholly and exclusively’ rule.

Where a landlord genuinely runs the rental business from home they may claim the extra business costs that they incur - such as the cost of extra lighting and heating.

Where a specific part of their home is used exclusively for running the rental business for a significant amount of time, whether continuously or at particular times, then a proportion of all fixed expenses referable to that room may be deducted. Examples might be rent they pay to their own landlord for their home, repairs, property insurance etc - as well as lighting and heating. But see below where unusually high expenses are incurred.

Similar common-sense principles apply where a landlord lets a part of their home. That is, they need to split expenses between private use and rental use. Periods when their home is unoccupied will normally count as non-business use unless a definite part is set aside to let and they are actively seeking a tenant.

Sometimes there may be general overhead expenses of running a rental business. For example, in a large business employees may repair and decorate both the landlord’s private accommodation and commercial properties while office staff organise the work. An appropriate proportion of both the direct expenses (say the wages of painters) and the administrative staff needs to be allocated to the private work and excluded from the rental business profit computation.

It is impossible to lay down hard and fast rules because circumstances vary enormously. The aim is for the rental business deductions to reflect the commercial use of the property in a fair and reasonable way.''

Ramnik

[invest]

If your scared of the cgt to use your home as an office and you want to sell the property in the future without paying tax

have the office in a smart shed it cant be added onto the cgt as its not seen as an asset to the home.