Claiming home as office expenses for landlords

Many landlords run a property business from a home office but are scared to claim business expenses because they are worried about triggering a capital gains tax bill when they move house.

The myth is claiming tax relief for working from home makes part of the property business premises which is liable to capital gains tax when sold.

The reality is HM Revenue & Customs are more than happy to let landlords claim home as office expenses, provided the rules are followed.

Any landlord can claim an annual tax allowance of £208 – or £4 a week – without any questions asked and with no fear of capital gains tax.

Guidance for tax inspectors published by HMRC specifically instructs them not to investigate any of these claims.

For claims of more than £208 a year, a landlord needs to gather supporting evidence, like bills and receipts.

HMRC will accept the claim, providing the landlord can show the amount is reasonable and is no more than any additional household costs incurred by working from home.

The best way to make this claim is by apportionment – but the formula involves a little simple arithmetic.

Do not claim for a specific room set aside for business – that will alert HMRC that some capital gains tax may be due.

Instead, work out the average number of hours each week that several rooms are used for business – maybe three hours a day for the spare bedroom as an office and a couple of hours for business meetings in the living room.

Here comes the arithmetic – if your office is used three hours a day, five days a week, that is using that room for 15 hours out of an available 168 (24 x 7), that’s 9% of the week.

If that office takes up 10% of the floor area of the house and your home insurance is £450 a year, then that room is responsible for 10% of the cost of insurance of £450, which is £45.

As the room is used for 9% of the week, then that’s 9% of £45 = £4.05.

Work out the floor area of your home and each room used for business to calculate this. So, via that formula, the home insurance cost apportioned for your property business is £10.04 per year.

Crunch the numbers for other household costs in the same way, like phone and broadband, energy bills, council tax, repairs and maintenance.

Add them together, put the total in to the property pages of your tax return as ‘Other expenses’ and deduct the amount from profits to cut the tax paid.

Don’t ever claim less than £208 – it’s the magic number the taxman says you can have, so every landlord should claim the relief.

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