Self Employed. Claiming Tax Relief on Mortgage Interest. Implications.

HardWorker2010_2

I've search all over but can't find a definitive answer so perhaps someone on this forum can help.

I'm a self employed computer repair technician and carry out my work both at home and at clients sites. I have converted one of the bedrooms into an office/workshop for when I am working at home. It is fitted out with desks, a work bench, computers and shelving all of which are used for my business. This house is my only home.

I understand that I can claim a proportion of my household expenses against income tax. My question concerns the implications in claiming a proportion of my mortgage interest. I don't want to end up with a bill for Capital Gains at some point in the future.:eek:

Advice on this would be much appreciated.

fengirl_2

Yes, you can include a proportion of your household running costs in yur accounts. If you have 3 beds and 2 receps and use one room for work, then you include one fifth of all household costs, including mortgage interest.
In 26 years as an Inspector of Taxes, I never saw a CGT liability as the result of using part of a home as an office. The proportion of the house used and the number of years the room would be in use would be so small as to make no difference. The alternative is to ease an office somewhere, which would be far more expensive.
Don't forget that its the use of the room which is relevent, NOT whether or not you have claimed tax relief for the running costs. The same rules would apply for someone running a vlountary organisation from home, but the CGT rules are not designed to 'catch' such people.

Strapped

Fengirl, when it comes to fixed costs (mortgage interest, council tax, insurance) do you just apportion on the number of rooms, or is there an element of time involved? I have been reading the BIM47825 examples and am now more confused than I was before:

http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm

In example 4, "Chris" makes the calculation [whole house fixed costs] * [1 tenth] = Room fixed costs, then [Room fixed costs] * [4/24] ie the number of hours that the room is used for business in a day.

BUT, in example 6, "Gordon" calculates [Room fixed costs] * [8/10] ie the number of hours that the room is available for business divided by the total number of hours that the room is used each day.

I don't understand this. Why is there a difference? Which is correct? (And if the answer is, "both" - please explain?

Pennywise

Yes, you do have to consider relative time usage. I think that Fengirl made the perfectly reasonably assumption that you spend a similar amount of time in your "work area" as you do in your "living area" which is the norm for most people. I.e. a typical working day is 7-8 hours and the typical time spent "living" in the house will be similar, i.e. an hour in the morning, an hour for lunch, and a few hours in the evening - ignoring "sleeping time". You only have to time apportion if your personal circumstances show this assumption to be wrong, i.e. if you are only part time working or if you work out a lot at client's premises for meetings etc.

Strapped

Thanks, although still a teeny bit confused - why in the above examples does "Chris" divide by 24?

I have 3 beds, 2 receptions, plus a largish kitchen (you can dine in) plus toilet/bathrooms. One of the reception rooms is used for my business, almost exclusively. (Very occasionally used for an overnight guest as there is a sofabed in amongst the racking, filing cabinet and desk. Would it be reasonable to use 1/6 th * [mortgage interest + insurance + council tax + oil + electric] here? (I assume that I need to include the kitchen as it is not just a small kitchen but has living space).

Apologies to the OP for crashing his thread!

Strapped

Anyone? (please?)