How working from home can work for tax planning

Working from home can be a highly successful way of dealing with routine tasks that can often be overlooked in the day-to-day running of a busy practice. But did you know that in doing so you may trigger Capital Gains Tax (CGT)? Fortunately, there are some straightforward ways to reduce or avoid your CGT bill, while keeping on HMRC’s good side.
 

CGT is a potentially complex area. The law states that ‘if you use part of your residential home exclusively for business use then PRR (Private Residents’ Relief – tax relief available to reduce CGT) has to be apportioned according to the personal element only’. Essentially, this means that the ‘business’ part of your home is subject to CGT.
 

If a room has a dual purpose, however, PRR will not be restricted. Dual purpose means actual, regular personal use in addition to work use. Don’t think that a few personal items put in a room where you also have your desk set up will suffice. A better example would be a room where you work, but is also available for use as a guest bedroom when it is needed.
 

Another solution is to rent a room in your house to your company, and for using your facilities they will pay you an income. Again, if the room also has ‘regular residential use’ then you should be able to override the rule that stipulates your home is now counted as a business. Draw up a contract which outlines the days, hours and times that you will be using the room as a workplace and when it will be free for domestic use. A formal agreement like this will protect you if HMRC wants to investigate further.
 

It is possible to be tax efficient and remain within the law as long as you seek and follow the right advice. Find an accountant who understands the challenges that dental practitioners face and will support you accordingly. Working from home is common for practice owners, yet it can also mean an unwanted CGT bill – simple solutions structured properly will not only help you to be tax efficient, but will also help you make the most of your time at work.
 

Lansdell & Rose are specialist medical and dental accountants, who can help advise you with tax planning and help you find ways to structure your business. Visit www.lansdellrose.co.uk or call 020 7376 9333.