Back to the topic at hand. If you work from home and have set up an office and use it exclusively for this reason 24/7 then you may be subject to Capital Gains Tax (CGT) when you sell your house. Whilst it may be a good way for your company to increase the deduction for house hold costs for the business, it can mean an expensive CGT bill when you sell your property. Usually when you sell your property, any profits are protected by the PPR Exemption. That's the Principle Private Residence Exemption. When you use part of your "private residence" exclusively for business, then when you sell your house, part of the profit WILL be subject to CGT. For example, if you bought your house in the year 2000 for £100k and sold it in the year 2010 for £200k you have made a profit of £100k and under normal circumstances are covered by the PPR exemption. That profit is tax free. If however you used 1/4 of the house exclusively for business, ie a quarter of the house, then the tax man may visit your profit and ask that CGT applies to £25k of the profit as well, at what ever rate it is at the time of sale.
Now this has happened to a number of people and YES the tax man has a right to it. Its very common these days for us to work from home and apportion part of our house for this purpose.
SOLUTION - Draw up a legal agreement with your company stating the hours of use. That is make it part time use and not exclusive use. For example - State that the space, room, etc, is only used for business from 10am to 4pm only. It can be used for other home use after or before those times. That way you protect your Principle Private Residence Exemption.
Now I'm sure you can think of different exemptions or examples and ask if it applies then. There will also be some grey areas etc. Speak to your accountant and if you haven't got one, then speak to us.
Remi Okeshola
Managing Director
RBSS Consulting Ltd
www.rbssconsulting.com
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