HMRC - claiming for your mortgage

[rickysmiths]

rickysmiths you need to do this with the support of your accountant. You need to weigh up the potential benefit in terms of tax saving compared to the time spent preparing the claim, potentially corresponding with HMRC supporting your calculations, even potentially suffering an inquiry.

If your accountant is in a small practice do they subscribe to any specialist tax support service (Abbey Tax, Ross Martin etc.)?

Anyway, here's the bit everyone always seems to ignore: this is nothing to do with claiming mortgage interest (or council tax) - if there is a charge to CGT due to exclusive business use of part of your home then HMRC are entitled to make that charge whether you have claimed mortgage interest, heating bills or nothing at all!

Thank you for the info. It is obviously very complex. It may be the accountant knowing our Mortage was quite small didn't think the effort was worth the gain. Our circumstances have changed now so I will speak to her about it again.

[Hebs]

i was told by an accountant at an NCMA conference that we can claim ANYTHING and the onus is on the tax man to show why we can't claim rather than us saying why we can

[MrAnchovy]

Another article confirming the CGT position.

[MrAnchovy]

I am not an accountant and this is not what the IR are saying. I spoke to them this week and the council.

What are they saying that contradicts what I am saying?

If someone from HMRC is saying you can't claim a proportion of mortgage interest, they are contradicting their own guidance as stated here and here.

If someone from the council is saying that childminding changes the use class of a dwellinghouse (in relation to which council tax is payable) to some other class in relation to which non-domestic rates (business rates) are payable, they are contradicting the guidance issued by the government in this document (page 5 and 6) which says "the
key test [of whether a planning application for change of use is required] is: is it still mainly a home or has it become business premises?"

If anyone is saying that the use class of a building as determined by planning law can be determined by the contents of the income tax return of the occupier (as opposed to the facts which form the basis of the amounts claimed in any return), I don't see how they could possibly justify this statement with any reference to the way the law actually works in any jurisdiction of the UK.

If someone is saying that part of the Private Residence Relief against Capital Gains Tax could be disallowed due to use of part of a residence for business purposes some of the time and domestic purposes at other times (which is clearly not exclusive use for either purpose), how do they square that with the relevant statute which says "... part of which is used exclusively for the purpose of a trade or business ..."?

Asking HMRC about this is a bit like a child coming to you half an hour before tea asking for a biscuit - you are going to say no. But there is no law against biscuits before tea, and if they go to the tin and take one out you can't stop them. Fortunately HMRC are not allowed to send you down from the table without any pudding! (Perhaps I took that analogy one sentence too far).

[Chimps Childminding]

The tax man frightens me enough as it it and I am easlily confused so I think I will leave the mortgage issue well alone even tho I have got a huge mortgage

[Bridey]

Sorry am I being thick ?Where does the figure of £3 a week come from? or is this just what you extimate your own saving might be?

I was using his example in his previous post (number 9 in this thread) which is based on a monthly mortgage interest of £420. I have a very low tracker mortgage so the whole thing isn't applicable to me, I was just saying that, in that particular example, the cost of paying an accountant to sort all this out would far outweigh the benefit of saving £3 a week in tax when that sort of saving could be easily made elsewhere in everyday life without incurring further costs

[rickysmiths]

I was using his example in his previous post (number 9 in this thread) which is based on a monthly mortgage interest of £420. I have a very low tracker mortgage so the whole thing isn't applicable to me, I was just saying that, in that particular example, the cost of paying an accountant to sort all this out would far outweigh the benefit of saving £3 a week in tax when that sort of saving could be easily made elsewhere in everyday life without incurring further costs

Oh I see thanks.

[Bridey]

However, if the tax saving would be larger than this then its certainly worth looking into - the links Mr A has provided are very interesting indeed!

[Bridey]

MrAnchovy, if you are still around ...

I remember reading the other day that, should capital gains tax be imposed, its dependent on how much the gain is over a certain period of time ie. you're allowed to gain so much a year without paying tax. Am I right and do you know the specifics of this?

Also if capital gains tax is imposed on a childminder wouldn't it only be applicable to the proportion of the house that was being claimed for on the mortgage tax relief rather that the increase in value of the entire property?

[Chatterbox Childcare]

Another article confirming the CGT position.

So reading this it means that if we use all of the house for work but not specifically and some time is personal it cannot be classed as a business use room/s and therefore no CGT but then surely not tax relief is allowable?

[MrAnchovy]

MrAnchovy, if you are still around ...

I think I'll be around for a while

I remember reading the other day that, should capital gains tax be imposed, its dependent on how much the gain is over a certain period of time ie. you're allowed to gain so much a year without paying tax. Am I right and do you know the specifics of this?

The first part of the gain realised in the year of sale is tax free - this is the Annual Exempt Amount and is currently £10,100. If you own a property jointly, you each have this amount available.

Furthermore, in calculating the gain you are allowed to take inflation into account. This is called Indexation Allowance and uses rates published by HMRC a few months in arrears.

You can also offset amounts you have spent improving (but not maintaining) the property, each adjusted by the Indexation Allowance.

Also if capital gains tax is imposed on a childminder wouldn't it only be applicable to the proportion of the house that was being claimed for on the mortgage tax relief rather that the increase in value of the entire property?

Absolutely.

So let's do an example. House purchased by married couple for £250,000 in January 1998 and sold for £400,000 in November 2010. 3 bedrooms, living and dining room with 3 rooms used exclusively for 1/2 the time (of course because it is for less than 100% of the time there is no apportionment to business use for CGT purposes, but let's go with it for a while...) so 3 / 5 x 0.5 = 30% business use.

Unindexed gain is £150,000.

Indexed rise is 0.422 from the previous link so indexation allowance is £250,000 x 0.422 = £105,500.

Net gain £150,000 - £105,500 = £45,000

Gain apportioned to business use = 30% x £45,000 = £13,500

Each spouse has a chargeable gain of £6,750 which goes on their tax return, but no CGT payable due to AEA of £10,100.

[auntym]

Oh my god. I really dont understand any of this. Lol. Ok. My undertake of this is that if I use my front room for work and its used by my teens at night I could claim slight interest relief but if I were to move and make a profit regardless on my house that the taxman would be entitled to some of that. I dont fancy that. Or have I got iv wrong

[MrAnchovy]

So reading this it means that if we use all of the house for work but not specifically and some time is personal it cannot be classed as a business use room/s and therefore no CGT but then surely not tax relief is allowable?

No, because Capital Gains Tax and Income Tax are seperate taxes with separate establishment in law.

The law which establishes the business use apportionment for Capital Gains Tax requires exclusive business use, which means 100% business use 100% of the time.

The law which establishes the deduction for expenses incurred in using your home for your business allows for 100% business use for less than 100% of the time, as acknowledged by HMRC here.

This may seem illogical, inconsistent and strange but I have two personal comments:

• tax is illogical, inconsistent and strange
• this whole area would be a lot less complicated if back in the days of MIRAS (interest relief on your home mortgage for those under 40 ) the then Inland Revenue hadn't created this whole idea of business/non-business apportionment to stop people claiming MIRAS when they used one room as an office. They argued very hard then that part time use as an office meant you couldn't claim part of the relief that applied to your home, so they can't turn round now and argue that with the facts the same you can't claim the relief that applies to the business use.

[Bridey]

Thank you for the info. I shall read it again later and see if it sinks in. My brain is occupied trying to cook a shepherds pie for 8 at the moment!

[MrAnchovy]

if I use my front room for work and its used by my teens at night I could claim slight interest relief

That's right, although if you have a big mortgage and use half of your house half of the time for childminding it could be a big sum. And this also applies to all your other reasonable household expenses (council tax, insurance, heating and lighting, water rates, boiler maintenance contract, window cleaner, cleaner...)

but if I were to move and make a profit regardless on my house that the taxman would be entitled to some of that

No. That's what HMRC might like you to believe, and what they seem to be telling DebbieS26, but the references I have quoted and (I suggest) any accountant or tax lawyer that is up to date on this will tell you that the way the law currently stands the tax man can't get his hands on any of that profit.

[jumpinjen]

This is very interesting. My accountant has always advised against because of the potential Capital Gains issue. However the way you explain it and none of the rooms in my flat or house were exclusively for the use of childminding, all the 'habital' rooms are and have always been registered and used. However if say I mind for 50hrs a week and use each of the 4 bedrooms, lounge and dining room during that week does it matter how many hours each room is used individually? So lounge pretty much all those hours but Bedroom 1 10hrs sleeping bed 2 11hrs sleeping etc?

If I find I can claim, can i backdate the claim and if so for how many years?

I claim some interest on it on this basis, that my lounge and children's bedroom, kitchen, garden, bathroom and hall are family home first before they are for business use. i am perfectly comfortable with this, and my accountant who puts my tax return through using sole trader regulations is perfectly comfortable to do so.... she advised me to, and explained the rule about it being for sole use then cap gains may be payable... i linked to a good explanation the other day for someone,

jen x

[auntym]

Please could you explain how this works. Is it part interest you claim. Also I have never claimed for window cleaner? I pay my 14 year old 5 quid a week for helping clean minding room and toys as an incentive to help. Does this mean I can claim that or is it that grey an area that I should not consider it. I do claim a portion of boiler cover 50% although I would not have it if not minding as my cousin is a registered boiler engineer.

[aly]

Please could you explain how this works. Is it part interest you claim. Also I have never claimed for window cleaner? I pay my 14 year old 5 quid a week for helping clean minding room and toys as an incentive to help. Does this mean I can claim that or is it that grey an area that I should not consider it. I do claim a portion of boiler cover 50% although I would not have it if not minding as my cousin is a registered boiler engineer.

i think debbie mentioned this before, that you can pay and put it on expenses.

[rickysmiths]

Please could you explain how this works. Is it part interest you claim. Also I have never claimed for window cleaner? I pay my 14 year old 5 quid a week for helping clean minding room and toys as an incentive to help. Does this mean I can claim that or is it that grey an area that I should not consider it. I do claim a portion of boiler cover 50% although I would not have it if not minding as my cousin is a registered boiler engineer.

I put through a small amount each week £10 for my teens helping in this way and coming out all day in the holidays allowing outting further afiels to happen.

[MrAnchovy]

I claim some interest on it on this basis, that my lounge and children's bedroom, kitchen, garden, bathroom and hall are family home first before they are for business use. i am perfectly comfortable with this, and my accountant who puts my tax return through using sole trader regulations is perfectly comfortable to do so.... she advised me to, and explained the rule about it being for sole use then cap gains may be payable... i linked to a good explanation the other day for someone,

jen x

Thanks Jen, I was beginning to feel like I'd come from a different planet - mind you it's not the first time I've felt that