Working From Home: Don’t Lose Private Residence Relief!
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...an office. On the sale of her property, she realises a gain of £50,000. One eighth (£6,250) would be charged to CGT. To the extent that her annual exemption (£10,100 for 2010/11) remains available, this would shelter the gain with the result that no CGT is payable.
The same considerations apply if a person is employed but works from home and sets aside a dedicated area exclusively for work.
Protecting the Exemption
As noted above, relief is only lost where there is exclusive business use of part of the property. To protect the exemption, all that is...
...necessary is to ensure that any part of the home that is used for business purposes is also available for private use. For example, a room used as an office from which to run the business during the day could also be used by the taxpayer’s children to do their homework in the evening.
By ensuring that rooms used for business are also available for domestic use, it is possible both to work from home while ensuring that private residence relief remains available for the whole property.
Income Tax Dilemma
While non-exclusive business use is a `good thing’ from the perspective of protecting full entitlement to private residence relief, the same cannot be said from an income tax angle. Relief for expenses is available to the extent that they are incurred wholly and exclusively in relation to that business.
Where a room is used exclusively for business, a greater deduction is permitted. Where there is non-exclusive use, the permitted deduction is reduced as costs must be apportioned between business and domestic use.
If part of the property is used exclusively for business, all is not lost from a CGT perspective. Depending on the amount of any gain arising in relation to... continued on page three >