Claiming part of mortgage interest on self-assessment

Savvy_Sue

Getting there slowly, thanks for previous help, I found these hugely helpful links in another thread:

Pennywise wrote: »

Have a look at HMRC's manual re claims for use of home:-

http://www.hmrc.gov.uk/manuals/bimmanual/bim75010.htm

TheCyclingProgrammer wrote: »

I'm assuming you're self employed for your contract work and not running a Ltd company?

If so there's a good guide here:
http://www.freeagent.com/central/business-use-of-home-expenses/

So I can work out how much of our home is used for his office (not exclusively, it's also DS1's bedroom when he's home!), let's say it's a fifth.

We have an interest only mortgage. Let's say our monthly interest payments are £250 - it's more complicated than that but I just want to establish the principles.

And let's say DH uses his office for 6 hours a day.

Does that mean he can offset £250 / 5 (proportion of house) / 4 (time used as office) for each month he was self-employed?

Or are there special rules for interest only mortgages, which means we can only offset the amount of interest ADDED to the mortgage at the start of the year?

And is that formula the one I use for the Council Tax, ie monthly payment / 5 / 4?

I just want a rough idea to find out if it's worth spending any time on getting forensic about this ...

Darksparkle

There is some info here.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM47820.htm

jimmo

Did you follow the links on the HMRC website?
If not this one may be useful.
http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm
The basic idea is that you are expected to come up with something that reasonably reflects the business use of the roomover the business year.
One suggestion: When DS1 is not at home it seems that the room is used exclusively for business. I imagine that when DS1 is at home it is not used for business at all. If that is the case you have one fifth of the house used exclusively for business for the proportion of the year that DS1 is not at home.
You only need to look at hours when the room is in dual purpose use.

Savvy_Sue

Darksparkle wrote: »

There is some info here.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM47820.htm

Yes, I'd got that one, thanks, but it says:

Mortgage interest

If part of the home is used solely for the trade then an appropriate part of the mortgage interest is an allowable deduction. Repayments of capital are not allowable. More detailed guidance on interest payments can be found at BIM45650 onwards. If profit is computed using cash basis, the maximum that can be claimed for interest and costs of obtaining finance is £500. See BIM70040.

And I looked at BIM45650 and BIM70040 and was no wiser about whether ALL our interest repayments were allowable, because obviously they are higher than they would be if we had a similar sized repayment mortgage.

But re-reading it now, because that room isn't exclusively business use (see below), does that mean we can't offset any mortgage interest anyway?

jimmo wrote: »

Did you follow the links on the HMRC website?
If not this one may be useful.
http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm

Oh yes, lots of links! :rotfl: Including that one.

jimmo wrote: »

The basic idea is that you are expected to come up with something that reasonably reflects the business use of the roomover the business year.
One suggestion: When DS1 is not at home it seems that the room is used exclusively for business. I imagine that when DS1 is at home it is not used for business at all. If that is the case you have one fifth of the house used exclusively for business for the proportion of the year that DS1 is not at home.
You only need to look at hours when the room is in dual purpose use.

Thanks, that's helpful. It's definitely not exclusively business use, so does the 'divide by 5 because there are 4 other rooms, and then by 4 because he uses it about 6 hours a day' calculation work?

jimmo wrote: »

You only need to look at hours when the room is in dual purpose use.

Well, even when DS1 is home DH still works in there, and DS1 boots him out when he wants to go to bed ... and the bed is also a useful 'sorting' space for laundry etc!

What I'm hoping to do this year is get the basics in place: DH was only self employed for 7 months, and made very little money, so he'll definitely be owed tax from his employment days. I'm not sure how much better next year will be, but getting the right ballpark figures this year should save time then ...

jimmo

I rather imagined that your DS1 was a student and when he was away at Uni that would be 30 weeks where his bedroom was used exclusively for business purposes. My 2 were students and when they came home they spent all day asleep and all night “working” on their computers, Xboxes etc and their rooms were strictly off limits to normal human beings.
I suppose the way forward depends on how much effort you want to put into this so:
1) Yes you are right to allocate one fifth of the household costs to that bedroom but the tricky bit is then what proportion of the bedroom’s use is business.
It seems to be the case that for the periods when DS1 is at home the bedroom is his. Dad is allowed to use it for business and the business use is 6 hours out of every 24 ie one quarter, as you have said. It would be possible for you to claim that DS1 only uses his bedroom for sleeping in say 9 hrs/day so the business use is 6/15. Personally I think that would be going a bit too far
When DS1 is away however you seem to be saying that the room is used 6 hours a day for business, say 30 hours a week, and maybe 2 hours a week for domestic purposes.
That would be 30/32 business use. Example 6 in the link I posted last time uses different fractions for variable costs and fixed costs and both are based use or allocation rather than the number of hours in the day. You therefore have the opportunity to create comparable fractions if you wish and whether its all worthwhile is up to you.
It is perhaps worth remembering that the HMRC manuals were written for staff. Certainly the first 6 examples do not seek to describe or define what is allowable so much as saying such claims seem reasonable and are unlikely to be worth challenging. As a for instance if I saw a claim such as in example 4 I would accept it because it seems reasonable. I would also think that the claimant is probably entitled to more than they have claimed but it would not be my job to point that out to them.

Savvy_Sue

jimmo wrote: »

I rather imagined that your DS1 was a student and when he was away at Uni that would be 30 weeks where his bedroom was used exclusively for business purposes. My 2 were students and when they came home they spent all day asleep and all night “working” on their computers, Xboxes etc and their rooms were strictly off limits to normal human beings.

:rotfl: Been there, done that, got the t-shirt! No, he's no longer a student, he's travelling, but this is his permanent UK base.

jimmo wrote: »

I suppose the way forward depends on how much effort you want to put into this so:

Given what you've said, probably not as much effort as all that ... but I am definitely keen to establish for CGT purposes that this room is not exclusively used for business, because it isn't, however I hadn't appreciated from reading the links (late at night) that the proportion of business use wasn't based on 24 hours pd, but on the proportion of biz use to domestic use.

jimmo wrote: »

It is perhaps worth remembering that the HMRC manuals were written for staff. Certainly the first 6 examples do not seek to describe or define what is allowable so much as saying such claims seem reasonable and are unlikely to be worth challenging. As a for instance if I saw a claim such as in example 4 I would accept it because it seems reasonable. I would also think that the claimant is probably entitled to more than they have claimed but it would not be my job to point that out to them.

Yes, and I'm keen for DH to make a 'reasonable' claim which I can repeat / justify from year to year, rather than one which looks iffy.

Savvy_Sue wrote: »

Or are there special rules for interest only mortgages, which means we can only offset the amount of interest ADDED to the mortgage at the start of the year?

I'm still keen to get an answer to this question, if it makes sense to anyone ...

To re-state it: if we made interest payments of £1500 in the period he was self employed, is it a proportion of that we can offset? That's the only figure which makes sense to me to use, but I could be way off track.

jimmo

Savvy_Sue wrote: »

I'm still keen to get an answer to this question, if it makes sense to anyone ...

To re-state it: if we made interest payments of £1500 in the period he was self employed, is it a proportion of that we can offset? That's the only figure which makes sense to me to use, but I could be way off track.

I’m struggling to understand that. There are no special rules for interest only mortgages and, without looking it up, I’m pretty sure that the amount claimable is the amount charged in the year. For an interest only mortgage the amount you pay and the amount you are charged should be pretty close to each other but, in practical terms, it is down to your mortgage lender to certify the correct amount.

Cook_County

Most people would not claim any of the mortgage interest for fear of CGT on an eventual sale.