Cookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.
Home working and Capital Gains Tax (CGT)
Newsletter issue - January 2022
Working from home was slowly becoming more common before the Covid-19 pandemic; however, the various lockdown restrictions meant that it increased exponentially in 2020 and 2021. Many employees have indicated that they do not wish to return to the office full-time, and employers appear to be willing to acquiesce to requests for hybrid working patterns. As a result, working from home is likely to be here to stay. Much of the tax related guidance surrounding homeworking that has come to the fore in the wake of the pandemic relates to what deductions can be made for income tax purposes, and what can employers pay to employees in respect of working from home without triggering a tax bill. However, it is far less well-known that there can be CGT considerations as well.
A house is a chargeable asset for CGT purposes. If it is sold for more than it was bought for, a chargeable gain can arise. Where the house has been the only home of the owner throughout the period of ownership, principal private residence relief (PPR) will usually be available to offset the gain completely. As a result, most people don't even think about CGT when selling their home. However, a problem can arise where part of the house has been used otherwise than as a home, including in the course of an employment.
Where this is the case, HMRC may reduce the available PPR on a just and reasonable basis. Where this reduction leaves a taxable gain in excess of the available annual exempt amount (or if the annual exempt amount has already been used by other gains in the year) there will be a tax bill on the gain. Additionally, because the gain is not fully covered by PPR the seller will need to complete a UK property reporting service return and make a payment on account of the tax within 60 days of completion. Furthermore, as residential property is subject to higher rates of tax than other gains an unexpected bill can come as a nasty shock.
There is a relatively simple way to avoid the loss of relief - which is to avoid using any part of the house exclusively for work purposes. So, if the employee uses a particular room to work in, the loss of relief can be avoided if the rest of the family has access to it for their own use, e.g. as a study or reading room. If the employee lives alone, the same protection can be secured by ensuring the room chosen is a multi-use room, or by setting up the workstation in a room that already has other use, e.g. the living room.
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
Please complete our form
to request a callback
Competitive fixed quotes
for agreed services
Increase your profit and
reduce tax liabilities
Expert advice for your
business size
