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Taxation, 22 March 2001 included an article by Mike Down and Mike Thexton at pages 593 to 596 concerning the ability of a director to deduct the costs of working from home under section 198, Taxes Act 1988 ('Hot Desking in the Library'). The authors state:
'Beware a possible capital gains tax pitfall. If one room in a private house is specifically set aside for business use, upon sale the Revenue will want to see a restriction in the private residence relief.'
Taxation, 22 March 2001 included an article by Mike Down and Mike Thexton at pages 593 to 596 concerning the ability of a director to deduct the costs of working from home under section 198, Taxes Act 1988 ('Hot Desking in the Library'). The authors state:
'Beware a possible capital gains tax pitfall. If one room in a private house is specifically set aside for business use, upon sale the Revenue will want to see a restriction in the private residence relief.'
I assume that in that comment the authors are referring to section 224(1), Taxation of Chargeable Gains Act 1992 which provides:
'If the gain accrues from the disposal of a dwelling-house or part of a dwelling-house part of which is used exclusively for the purpose of a trade or business, or of a profession or vocation, the gain shall be apportioned …'
It can be seen that section 224(1) only requires an apportionment to be made where a room has been used '… exclusively for the purposes of a trade or business or of a profession or vocation'. The section makes no mention of using a room exclusively for the purposes of an office or employment.
As mentioned, the article concerns the ability of a director, i.e. an office holder, to deduct the costs of working from home. It would appear therefore that even if the Revenue allowed the director the cost of using a room exclusively for the purposes of his office, it would have no statutory right to apportion any subsequent gain on the sale of the property.
I wonder if this is yet another reason why the Revenue is so reluctant to allow the costs of working from home!
D P Sagar,
Senior Lecturer in Law,
The University, Huddersfield.
Editorial note. I understand that the contrary viewpoint is that the section does not say whose trade or profession it needs to be. So the argument would be that if an employee uses it for the purposes of his employer's business, then section 224(1) still restricts the relief because the room is, as mentioned in the subsection, being used for the purposes of a trade or business, albeit not that of the homeowner but that of the employer of the homeowner.
This argument is of course somewhat inventive and I do not know whether or not the Revenue would want to adopt it.
