Chris Etherington

Written by: Chris Etherington

Chris Etherington


The Home Office Tax Trap

As home workers suffer with bad backs from sitting at kitchen tables and makeshift desks, it is no surprise that Google searches for businesses like Wayfair have spiked in recent weeks. With this likely to be a more permanent way of life for many, people will be looking at how to improve their existing home-office set up and estate agents could see a separate study become part of a list of non-negotiables.

According to the latest ‘Opinions and Lifestyle Survey’ undertaken by the Office of National Statistics, the number of people working from home currently stands at 41 per cent of all working adults compared to 12 per cent last year, with a third of us working solely from home at the moment.

With that comes more expenditure at home on costs such as electricity, heating and for some new broadband services. Claims can be made on an individual’s tax return or online via a form P87 for relief in respect of these costs and the simplest approach is typically to make a claim for tax relief on £6 a week for such expenditure. What is less well known however is that such claims could lead to awkward questions from HMRC in the future when the house is sold. These could prove very costly.

Ordinarily, when an individual sells their main home, this benefits from relief from capital gains tax (CGT) and no tax is due to HMRC, even if the property has risen quite significantly in value.

However, this relief can be restricted and some of the increased value of an individual’s home can be taxable where a particular room in the house is designated solely for business use and is not used personally in any way. This should be considered in any future plans for a dream study.

The problem can easily be avoided if it can be shown that the room has a dual purpose. Something as simple as having an exercise bike or a sofa bed in the room could potentially save home workers thousands of pounds and use as a study for the whole family could also suffice.

So, for those watching the news and admiring the interviewee’s home office set up, bear in mind that they might ultimately be worse off for it and the multipurpose box room might have its own benefits after all. 

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