director, use home as office, home running costs, fully paid no mortgage

Hello, My wife and I jointly own a house, fully paid with no mortgages. We also serve our private limited company as two of its only directors. Our company uses our house as the registered office and we also work from home like 16 hours a day, 7 days a week, non-exclusively from one room. Owning a property generally involves quite a few running costs such as rent, council tax, electricity/gas/water, insurance, cleaning, and management charges that's quite common for new builds these days. Our question is, given our current situation, can we make reference to rightmove.com for the current market rent and dial that in the total costs of running the property, and charge the fair share of the costs to our company without burdening ourselves with additional income taxes? With kind regards Dave

Hi dave888,

I would ask you to use the guidance in HMRC’s Business Income Manual at BIM47815 and BIM47820 on how to apportion property costs and the types of expenditure that may be claimed. You can use the weblinks below to view this guidance. 
BIM47815 - Specific deductions: use of home: apportioning the expenditure
BIM47820 - Specific deductions: use of home: specific expenses
There may be capital gains to pay on the sale of the property where part of it is used wholly for business purposes, please refer to the guidance in MRC’s Capital Gains Tax Manual at CG64663, weblink below. 
CG64663 - Private residence relief: non residential use: part of house used exclusively for business
Please note that any deductions claimed by the company for use of your home will have to declared in your personal income tax returns.
I cannot advise you on any arrangements that would avoid personal income tax liabilities. 

Thank you.
 

Hello HMRC Admin 20, Thanks for the reply. I see three ways into enjoying the use of a house: 1) borrow from a bank and pay mortgage interest, 2) enter into a lease and pay the rent, or 3) pay the price in full, although not burdened with interest or rent, but lose the cash flow that would otherwise be available prior to the purchase. In cases 1) and 2), part of interest and rent are allowable deductions. For case 3), it remains unclear, after reading the Manuals, whether part of the "lost cash flow" can also be an allowable deduction. Or can one simply obtain an estimate of fair market rent and use that as the basis to calculate the deduction? Thanks

Hi,

The answer is not as black and white as you would probably like it to be as there are implications on claiming relief for use of your home against your business when you do not claim the standard deduction that HMRC allows.

We would also refer you to the guidance previously given at BIM47825.

With regards using a fair market rental value there would need to be a formal agreement drawn up and as previously indicated this could impact on your personal tax as you would as an individual in effect be receiving rental income on which tax could be due. You would also need to check with any mortgage provider that the house can be used in that way, similarly house insurance could be affected. Finally, as previously stated this could also have an effect with regards to capital gains when, or if the property is sold.

There would be no allowable deduction in respect of loss of cashflow by purchasing a house.

Thank you.