Tax Relief and Property

Tax Relief

The tax regime for mortgage holders has become much less favourable than it was previously

Tax Relief and Property

Get a Free Quote Tax Relief and Property – The Basics

Since the abolition of Mortgage Interest Relief at Source (MIRAS) in 2000, the tax regime for mortgage holders has become much less favourable than it was previously. However, capital gains tax exemptions still exist for householders selling their main residence, in most circumstances.

Private Residence Relief
As a general rule, when you sell your home you will not be liable for capital gains tax, so long as the property has been your sole residence for the time that you have owned it. This exemption from capital gains tax is known as private residence relief.

But, you may not qualify for private residence relief on the whole of the property if some of the following criteria are met:
Bullet Point the property has extensive outbuildings;
Bullet Point the garden, including the area occupied by the house, exceeds 0.5 hectare (1.25 acres);
Bullet Point the property was used for any purpose other than as a home for your family (plus one lodger);
Bullet Point any part of the property was used exclusively for commercial purposes;
Bullet Point the property was not your sole residence during the period of ownership.

In reality, HM Revenue & Customs (HMRC) offers considerable flexibility regarding private residence relief. For example, if you kept a couple of horses for your personal use, in stables with a large paddock, you probably would not lose private residence relief, whereas if you were running a livery stables business from the same premises then HMRC might have a different attitude.

Similarly, using one room of your property as an office to run a business from home is unlikely to upset HMRC under normal circumstances, particularly if the room is also used for other non-business purposes such as a children’s games room or a spare bedroom for visitors.

Tax Implications of Working from Home
With increasing numbers of people working from home, the situation regarding what tax reliefs, if any, can be claimed, is not always straightforward.

If you are an employee, you would not normally be entitled to claim tax relief for household expenses unless you can satisfy HMRC that working from home is a condition of your employment.

If you are self-employed, you are entitled to claim tax relief for household expenses incurred ‘wholly and exclusively’ for the business. This could include a proportion of electricity, heating and telephone costs, as well as the costs of business equipment such as computers, stationery and tools.

HMRC has agreed that an employee working from home may deduct £2 (exclusive of the cost of business telephone calls) for each week that they are required to work from home, without needing to provide a detailed breakdown of expenses incurred. If a larger amount is claimed, detailed figures will need to be produced.

Summary
Bullet Point Private residence relief enables property owners to sell their main residence without having to pay capital gains tax;
Bullet Point if you claim business tax reliefs when working from home you could be liable for capital gains tax on a proportion of the value your property when you decide to sell.

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