Tax Question of the Week

Question

My client spends time working from home and wishes to claim a deduction against her trading profits for use of home expenses. I doubt whether the income tax savings will be significant and could easily be outweighed by future capital gains tax payable because of a loss of principal private residence relief. What should she do?

Answer

It is possible there is no capital gains tax problem to worry about. The legislation denies PPR relief to that part of a gain which is attributable to any part of the house which has been used exclusively for business purposes. So, for example, a room which is occupied for business use during the working day but occupied for family and residential purposes in the evenings and at weekends will qualify in full for relief.
On the other hand, HMRC take the view that where the residential use is occasional and very minor then relief can be denied. They give the example of a doctor who keeps some private possessions in a room used as a surgery – the room will be treated as used exclusively for business purposes.

 

 

Question

My client spends time working from home and wishes to claim a deduction against her trading profits for use of home expenses. I doubt whether the income tax savings will be significant and could easily be outweighed by future capital gains tax payable because of a loss of principal private residence relief. What should she do?

Answer

The capital allowances legislation says that caravans are not prevented from being classified as plant on the grounds that they are buildings but this only applies to caravans used mainly for holiday lettings on certain qualifying caravan sites so your client will have to apply general principles. The general rule is that allowances are available for assets with which the business is carried on rather than in which or on which it is carried on. Caravans might normally be expected to be the latter. However, HMRC accept a caravan can be plant “if it does not occupy a fixed site and is regularly moved as part of normal trade usage” which, read in isolation, offers a ray of hope for your client. However, they carry on “… even if it is only moved from its summer site to winter quarters” which seems to be referring to caravan sites or similar.
To further confuse matters, HMRC say that a caravan used to house farm employees can be plant even if it occupies a fixed site but this treatment does not apply to other trades. Such a distinction does not appear to have any basis in law.

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