HMRC - claiming for your mortgage

[Chatterbox Childcare]

I have asked the question again today and am getting the same answer (rang 5 times last year and they all said the same thing)

If you want to claim for your mortgage then you are no longer a private residence and therefore the room/s that you are claiming for are subject to Capital Gains

They all have said, without exception, DON'T GO THERE

I understand that some childminders have accountants and they are advised differently, so i am just passing on what I have been told.

[Alibali]

I've always been told this too, better to do this than worry in the future about capital gains tax

[sarah707]

Thank you for clarifying that one again Debbie!

[Cammie Doodle]

I have always been told that too Debbie, its just not worth it. Also been told it can change your rates

[rickysmiths]

I ahve always believed and been advised this as well.

[MrAnchovy]

Hmmm, I would say probably don't go there. If you are curious, read on...

HMRC will tell you that because that is what they want you to think: it is not their responsibility (and definitely not in their interest) to tell you how to save tax.

This is the true position:

• The agreement between NCMA and HMRC about household expenses (the one that says 33% of Heating and lighting costs and 10%% of Water rates and Council tax for a full time CM) does not include mortgage interest so if you want to claim mortgage interest you will have to come up with your own calculation. Fortunately HMRC tell you how to do this and even give some worked examples, although the examples don't show perhaps the most useful method which is the habitable rooms basis.
  
• If you have been using part of your home exclusively for business purposes, HMRC may try to impose Capital Gains Tax when you sell it, whether or not you have been claiming mortgage interest. You can avoid this by ensuring that no part of your home is used exclusively for childminding - let your kids/nephews etc. play in it or throw a few parties.

Want to go there now?

[Donkey]

interesting....

my living room, kitchen, bathroom are used for childminding, but obviously not exclusively...

I have a massive mortgage, we took out a 100% mortgage at the peak of the market, lumped in our solicitor fees too...

out of the £450 mortgage payment, only a fraction of that is for repayment, the rest is interest...

yes Mranchovy, definately interesting...

this year, its looking likely I will not pay tax again, but next year is a different story as I would like an income and not to spend most of it on the kids lol

[MaryMary]

Welcome to the forum, Mr Anchovy. I see you have a tax head! (that is not an insult )

So, let me see if I have got this right....

I use the whole of my downstairs for childminding (upstairs is registered, but not used) during the hours of 8am-6pm, 5 days a week, say 48 weeks of the year. Can I charge half of my mortgage interest and insurance (during working hours) as expenses? Does this change during school holidays, when my children are home, or if my husband takes a day off (although he often 'hides' upstairs while I am minding! )

I would like to think that I have a good grasp of money matters, incuding tax, but this has now confused me a bit!

What is your background, by the way? (you don't have to answer that, I am just being nosey! )

[MrAnchovy]

How many bedrooms do you have?

The best way to calculate the share of costs is probably the habitable room basis. So if you have 2 bedrooms plus the lounge, you have 3 habitable rooms (you don't count kitchens, bathrooms, utilities, hallways etc). You use 1/3 of these for childminding. Let's say you use the lounge 50 hours a week for childminding, and 50 hours a week for yourself. You could then claim 1/6 of all your mortgage interest, so if this is say £420 (you have to get the exact figure each month from your mortgage statement) you could claim £70 a month, saving you £14 in tax or just £168 across the year.

Note that although I have worked a specific example, all this is provided for information only and without any guarantee in relation to any specific situation. You must take professional advice or other steps to ensure that your tax liability is calculated accurately in accordance with prevailing law.

[Carol M]

Hi again Mr Anchovy,
I said I would look out for your posts.
This is very interesting, I also have a huge mortgage, and I mean HUGE!
You are leading me to believe that I could be putting through a figure for the rooms I use for minding exclusively for 50 odd hours a week.
Thank you for bringing this to our attention, I will be investigating further.
Any more links you could give us would be very much welcomed.
Carol x

[Chatterbox Childcare]

I am not going to post on this again as I am flogging a dead horse but PLEASE PLEASE PLEASE call the HMRC and speak to them as there is conflicting information to what is being offered

I am not saying that I am right or wrong but please check it out. I know that if we have large mortgages then we want some back but are you prepared to change your house from home to business and pay the rest of the charges? i.e. business rates for my house are over £2000 a year, not to mention capital gains, planning permission etc...

[barbarella68]

I think it is totally unfair that you can claim for rent but not Mortgage.

[MrAnchovy]

Oops, that last was in answer to Flutterbyes.

MaryMary, you can use any reasonable method you like as long as you can demonstrate that it is reasonable. I like the habitable rooms method because (i) it is simple and therefore difficult to challenge on matters of detail - you can't get into arguments about floor area calculations etc. and (ii) it is a well-trodden path with HMRC.

With your husband on his day off and during school holidays with your children at home and using the area you use for your business, I would suggest that this is incidental to your exclusive business use at that time and so makes no difference, although there is no guarantee that HMRC would see it that way. This might be harder to argue if you were caring for your own baby, but not so with school age children.

If I am giving the impression that the whole thing is a bit woolly and undefined, that's because it is - there is no black and white here, only grey.

I am an accountant - see here for my hello.

[MrAnchovy]

Oh and to tidy up on the other points, claiming mortgage interest or anything else for that matter does not change the nature of use of a building.

If you convert part of your home to a day nursery so that you can't live in it, expect to pay business rates.

If you use part of your home only for childminding, so that it is no longer your principal private residence (i.e. you occupy that part of the building exclusively for business purposes), expect to pay Capital Gains Tax on a sale.

But use part of your home, part of the time for childminding or office work and it is still your home.

[rickysmiths]

Hmmm, I would say probably don't go there. If you are curious, read on...

HMRC will tell you that because that is what they want you to think: it is not their responsibility (and definitely not in their interest) to tell you how to save tax.

This is the true position:

• The agreement between NCMA and HMRC about household expenses (the one that says 33% of Heating and lighting costs and 10%% of Water rates and Council tax for a full time CM) does not include mortgage interest so if you want to claim mortgage interest you will have to come up with your own calculation. Fortunately HMRC tell you how to do this and even give some worked examples, although the examples don't show perhaps the most useful method which is the habitable rooms basis.
  
• If you have been using part of your home exclusively for business purposes, HMRC may try to impose Capital Gains Tax when you sell it, whether or not you have been claiming mortgage interest. You can avoid this by ensuring that no part of your home is used exclusively for childminding - let your kids/nephews etc. play in it or throw a few parties.

Want to go there now?

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?

[MrAnchovy]

Some references:

You can claim expenses for part-time exclusive use: HMRC BIM45745

Where a part of the property, which is the borrower's only or main residence, is only sometimes used for business purposes (but for a significant amount of time and then exclusively) the loan in question may be apportioned on any reasonable basis that takes account of both the proportion of the property so used and the duration of such use.

... and a deduction may be allowed for the interest on the part of the loan attributable to business use.

Private Residence Relief does not apply to the portion of a gain related to part of a dwelling used exclusively for a business - note that the concept of part-time exclusivity does not appear here: Taxation of Chargeable Gains Act 1992 S224(1)

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 and section 223 shall apply in relation to the part of the gain apportioned to the part which is not exclusively used for those purposes.

The end result, that to avoid a potential charge to CGT any exclusive business use must be interrupted by periods of non-business use is contained in many texts not freely available on the web, but see this example from an Article in the Barrister Magazine. I'm not going to quote that for copyright reasons, so scroll down to just above the heading 'Pensions'.

Bear in mind though that the law is subject to change, both in terms of statute (HMRC get fed up with this and introduce a new provision in the budget) and case law (HMRC have gone to court over this a number of times. When there has been exclusive use, they have won. Where there hasn't, they have lost). But also bear in mind that the right to claim home office expenses without risk to PPR is held dearly by many barristers, who are willing and able to defend this right to the hilt.

[MrAnchovy]

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!

[Chatterbox Childcare]

Oh and to tidy up on the other points, claiming mortgage interest or anything else for that matter does not change the nature of use of a building.

If you convert part of your home to a day nursery so that you can't live in it, expect to pay business rates.

If you use part of your home only for childminding, so that it is no longer your principal private residence (i.e. you occupy that part of the building exclusively for business purposes), expect to pay Capital Gains Tax on a sale.

But use part of your home, part of the time for childminding or office work and it is still your home.

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

[Bridey]

Using MrAnchovy's example, personally I'd rather save the £14 per month (£3 a week) elsewhere than get involved in all this!

[rickysmiths]

Using MrAnchovy's example, personally I'd rather save the £14 per month (£3 a week) elsewhere than get involved in all this!

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?