Can lodger work from home?

subjecttocontract

It seems that HMRC haven't moved with the times. WFH is the new normal for a large proportion of working age people AND surprise, surprise they WFH during the daytime. I guess HMRC might eventually get around to understanding how the new world order operates ! Although I wouldnt expect to much to soon.

Bookworm105

subjecttocontract said:

It seems that HMRC haven't moved with the times. WFH is the new normal for a large proportion of working age people AND surprise, surprise they WFH during the daytime. I guess HMRC might eventually get around to understanding how the new world order operates ! Although I wouldnt expect to much to soon.

indeed, they are still living in the early 1990s, but then legislation has not kept up so not really their fault as they don't make the legislation, they merely apply it 
PIM4002 - Rent-a-room: letting as office accommodation - HMRC internal manual - GOV.UK

1404

FrnC said:

Spare Room emailed me again today, to reiterate that it is news to them. They suggested I speak to a senior manager at HMRC, so I am waiting for a call back. Will let you know what happens.

Any news from your call back?  How did HMRC find out about the work from home day?

The literature I've seen though, which has been shared on this thread, is that only evenings and weekends seem to be allowed under the current rules.

1404

FrnC said:

user1977 said:

HMRC only care about how much rent you're getting.

I doubt anybody has a problem with working from home these days (in the sense of sitting by yourself using a computer/phone) but if you want to know, read your mortgage conditions and insurance policy. I wouldn't expect them to apply a more stringent policy to lodgers than to yourself though.

I presume you had already checked that having a lodger was ok with your lender/insurer?

Afraid not. HMRC kicked me off rent a room because one lodger works from home one day a week. I triple checked, because two years ago I was told it made no difference. The rent a room help sheet says evenings and weekends is ok. SpareRoom say this is news to them. But now I have to pay tax on most of the rent.

Another thing you have to watch out for is capital gains tax when you sell. I understand the principles, but when I looked at the form I was clueless. And you have to report it within 60 days of selling, AND, I think, on your next self assessment.

The principle is that if you rent out 40% of your house, you pay tax on 40% of your gain, less Letting Relief.

Regarding CGT when you sell your property having rented out some rooms to lodgers:

Can I just start by saying that the below workings out are from someone else as I am not smart or knowledgeable enough to have done it myself.  It needs to be checked by others on here who know what they are talking about.

But my understanding of your CGT situation is as follows. (I am making three assumptions:  1)  that you lived in the house alone for 9 months after buying it, 2) that you moved out after 10 years, and 3) that your equity gain is £100k):

£100k gain in house equity on house.

Lived alone for 9 months after buying the house. Has 9 months PPR at the end of ownership. (9 months + 9 months = 1.5 years of PPR). Sold house after 10 years of ownership.

1.5 years PPR / 10 years of ownership = 15% PPR

15% of £100,000 profit = £15,000, which is exempt from CGT.

The remaining £85,000 is subject to CGT. But only 40% of it. Because that is the portion which was let.

40% of £85,000 = £34,000 which is taxable.

However, additional tax relief is available (Lettings Relief). This is the lowest of these three figures: £40,000 (default) or £51,000 (the 60% of the £85,000 used as the owner's home) or £34,000 (the 40% part of house let out).

£34,000 is therefore used as it's the lowest figure of the three.  £34,000 taxable gains is cancelled out by £34,000 tax relief. No CGT to pay.

subjecttocontract

FrnC said:

Spare Room emailed me again today, to reiterate that it is news to them. They suggested I speak to a senior manager at HMRC, so I am waiting for a call back. Will let you know what happens.

What a ridiculous response from Spare Room. Nobody is really interested wether they have heard of it before or haven't bothered to keep up to date. Their response implies that they don't believe you. If you have it in writing and SPare Room can access the document then surely they can phone HMRC themselves. 

user1977

Bookworm105 said:

subjecttocontract said:

It seems that HMRC haven't moved with the times. WFH is the new normal for a large proportion of working age people AND surprise, surprise they WFH during the daytime. I guess HMRC might eventually get around to understanding how the new world order operates ! Although I wouldnt expect to much to soon.

indeed, they are still living in the early 1990s, but then legislation has not kept up so not really their fault as they don't make the legislation, they merely apply it 
PIM4002 - Rent-a-room: letting as office accommodation - HMRC internal manual - GOV.UK

That guidance doesn’t seem relevant here as it’s talking about rooms which are actually offices, not merely bedrooms having an ancillary “working from home” purpose.

I linked to the legislation above, and unless there’s some other legislation I’ve missed, it doesn’t seem to exclude WFH.

1404

user1977 said:

Bookworm105 said:

subjecttocontract said:

It seems that HMRC haven't moved with the times. WFH is the new normal for a large proportion of working age people AND surprise, surprise they WFH during the daytime. I guess HMRC might eventually get around to understanding how the new world order operates ! Although I wouldnt expect to much to soon.

indeed, they are still living in the early 1990s, but then legislation has not kept up so not really their fault as they don't make the legislation, they merely apply it 
PIM4002 - Rent-a-room: letting as office accommodation - HMRC internal manual - GOV.UK

That guidance doesn’t seem relevant here as it’s talking about rooms which are actually offices, not merely having an ancillary “working from home” purpose.

I linked to the legislation above, and unless there’s some other legislation I’ve missed, it doesn’t seem to exclude WFH.

The "evenings and weekends" reference by HMRC seems to exclude daytime working from home? 

user1977

1404 said:

user1977 said:

Bookworm105 said:

subjecttocontract said:

It seems that HMRC haven't moved with the times. WFH is the new normal for a large proportion of working age people AND surprise, surprise they WFH during the daytime. I guess HMRC might eventually get around to understanding how the new world order operates ! Although I wouldnt expect to much to soon.

indeed, they are still living in the early 1990s, but then legislation has not kept up so not really their fault as they don't make the legislation, they merely apply it 
PIM4002 - Rent-a-room: letting as office accommodation - HMRC internal manual - GOV.UK

That guidance doesn’t seem relevant here as it’s talking about rooms which are actually offices, not merely having an ancillary “working from home” purpose.

I linked to the legislation above, and unless there’s some other legislation I’ve missed, it doesn’t seem to exclude WFH.

The "evenings and weekends" reference by HMRC seems to exclude daytime working from home? 

It does, but that’s in their guidance, not the legislation.

subjecttocontract

Well seeing how everybody seems to be confused, including HMRC & Spare Room, the only safe course of action, if you want to avoid a tax bill, is to only accept lodgers who are NOT working from home on weekdays !

1404

subjecttocontract said:

Well seeing how everybody seems to be confused, including HMRC & Spare Room, the only safe course of action, if you want to avoid a tax bill, is to only accept lodgers who are NOT working from home on weekdays !

Indeed, and what a shame that is for good lodgers who require home working on some weekdays. It's certainly a question I'll be asking any potential lodgers in future.