Claim interest relief with home-based business - NO CGT NOW

buglawton

Apologies if this has already been posted: Wake Up to Money on Radio 5 today reported that declaring a pro-rata amount of your mortgage interest rates as an expense is now OK for home based business tax declaration (assuming you have some dedicated space for your business activities eg an office at home) - it has been confirmed that this will NOT result in a capital gains liability.

fengirl_2

I am not sure that one can give the blanket reassurance that using ones home for business exempts one from CGT - it all depends on the circumstances - how long the house was used, what proportion, etc etc. In any case, a CGT charge can arise when one uses ones main residence for something other than a residence, whether or not you claim any tax relief. Using your home to run a charity could give rise to a claim - its the use to which the property is put which is relvent, not what you claim against tax.
Having said all that, in 26 years, I never saw a liability on these grounds.

busy_b

So how would that work then?

I run a small business from home, I use one room out of 7 as an office and I use the majority of the garage too. How would I then claim back the appropriate amount of interest on my mortgage? (Which is quite low with the interest only amounting to around £200 per month)

I'd be quite interested to find out as my accountant was unsure as to the CGT rules, etc...

fengirl_2

You use the number of general function rooms, eg bedrooms and reception rooms, you dont count loos, etc and you include that proportion of your mortgage interest in your accounts. You are not claiming anything, just obtaining relief from tax for these outgoings. As far as the garage is concerned, Im sure HMRC would accet that as a room and you would deduct 2 over however many rooms you have for the interest (and utilities, etc of course).
Can I emphasise, this has nothing at all to do with CGT! CGT is chargeable on the sale of the property and will relate to the part not used as your main residence - it doesnt matter whether you get relief for your mortgage for the busines spart or not.

Lifeisbutadream

Sorry for sounding thick, but could we claim against our mortgage?

I use one of our rooms solely as an office (we have 8 rooms in the house) plus the entire garage, plus a large shed in the garden. Our mortgage is currently £950 per month.

buglawton

The news item was 20 mins into this program:
http://downloads.bbc.co.uk/podcasts/fivelive/money/money_20080701-0657.mp3

It did sound very reassuring - I plan to find more solid info later. Here's the biggy: they mentioned that you can back-claim for up to 6 years if you did not claim previously.

(Quote from BBC website abt this item - "....being self-employed you can offset your mortgage interest and council tax against your annual income tax bill, according to Revenue and Customs") This means a proportion depending in square metres as a percentage of the total house area, assuming it really does look like a dedicated office area.

The CGT angle is very relevant: The reason many self employed home workers preferred not to claim this relief previously was that there was a strong possibility that the home would then become liable for some CGT. This possibility always hung there and it has has now, apparently, be scotched.

Lifeisbutadream

We are also about to build an extension on the back of our house, part of which is for a bigger office for us. Our accountant advised us not to put any of the building work through the business because of CGT - has this changed now?

Pennywise

Please remember this is for self employed (sole traders and partners). It doesn't apply to those with their own limited companies who aren't self-employed - they are employees/office holders of a limited company. Claiming mortgage interest is discussed in HMRC Business Income manual. If you are a director/shareholder of your own limited company, the rules that apply are laid out in the employment income manual which restrict your claim to the EXTRA costs you incur whilst working from home - i.e. additional costs of more electric etc - the manual specifically mentions why mortgage interest isn't allowable for employees/directors.

buglawton

I wonder if there are any official web pages anywhere concerning the recent new clarification as reported on Wake Up To Money, though?

Bean_Counter

Maybe this link will help, along with the related links on the right hand side of the article.