Wfh - prr (cgt)

Trusts Discussion
1

Hello,

Some of our clients are:

  • Converting lofts.

  • Building garden offices.

  • Building extensions.

Into permanent office space. Does the forum have a view on the loss of PRR for parts of home that may be converted for a permanent business?

Any pitfalls in following this strategy?

Richard Bishop
PFEP

2

Hi Richard,

There can be pitfalls and mortgage companies and insurance can all factor in.

Guidance states that where use is exclusively business, PPR should not be allowed. This is usually why working on the kitchen table previously has not been an issue. HS283 includes this.
HS283 Private Residence Relief (2020) - GOV.UK (www.gov.uk)

If part of your home is used exclusively for business purposes, or you’ve let part of your home, split the gain between the business part or the let part, which is chargeable, and your own living accommodation, which is exempt.

If building a home office, obviously these costs would be allowable against the apportioned proceeds so it may be a mute point ultimately.

Hope this helps.

Lucy Orrow CTA TEP
Lambert Chapman LLP

3

An expert commented in the FT as long ago as August 2020 https://www.ftadviser.com/investments/2020/08/12/advisers-warned-of-tax-implications-of-working-from-home/

I have looked in the logical places on hmrc’s website and there is no specific WFH guidance on capital gains as opposed to claiming expenses, though that addresses private use issues. CG4650-90 deal with the general aspects of non-residential use for your own business or your employer’s. My experience of this is that taxpayers put the telescope up to the wrong eye and HMRC are not that interested in the absence of an enquiry into an entire return or some other serious aspect CGT misbehaviour, as an addition to the charge sheet and perhaps as a feature in the final horse-trade (the existence of which practice is officially denied).

Jack Harper

4

The relevant phrase here is ‘exclusive use’ since not only does that potentially threaten main residence relief (PPR) but also there may be other practical considerations such as being potentially liable for business rates on that part (especially with garden offices) and having to have employer or public liability insurance, not to mention that this activity may breach mortgage or leasehold restrictions. We always advise clients to ensure that any such use is clearly not exclusively for business use but also allows domestic/family use e.g. perhaps the children can and do do their homework there, or the games consoles are rigged up there, or perhaps a family home cinema etc.
Maxine

1 Like
5

HMRC say in CG4663: “The exclusive use test is a stringent one and you should not usually seek any restriction to relief for a room which has some measure of regular residential use. But occasional and very minor residential use should be disregarded”. Not only should it not be very minor but it should always be evidentially demonstrable in ways the law would recognise. HMRC will then move on to softer targets.

I suspect that if WFH becomes permanently widespread HMRC will risk/reward assess how far to expend resources on this topic, especially if many naive and ill-advised will have to roll over and pay up promptly as soon as challenged. The aggregate of numerous apportioned chargeable gains may present a juicy overall target if induced by a (if not quite Liechtenstein) Disclosure Facility. Relevant taxpayers might do well to eschew their customary insouciance about the probability of a personal fiscal lightning strike.

Jack Harper