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CGT & Business Use of Home

CGT & Business Use of Home

It was instilled into me long ago that a room completely set aside for business purposes still retained the Principle Private Residence Relief if personal possessions were kept in that room, eg. television, books, stamp collections etc.

On trawling through the HMRC Capital Gains Manual, I came across CG64663 - "Private residence relief: part of house used exclusively for business." Within that section is the following paragraph: "But occasional and very minor residential use should be disregarded. For example, if a doctor keeps private possessions in a room used as her surgery the surgery should still be regarded as exclusively in business use."

Would actually watching the TV or reading books be deemed to be "occasional and very minor residential use"?

I have a client who works from home and about 2/3 (two-thirds) of the rooms in the house are used for business in one form or another, whether it be for meeting and greeting customers (yes, there is appropriate insurance in place), storing documents and office equipment or physical working areas. The client claims the usual expenses involved in working from home duly restricted by 1/3 (one-third) private use.

Since each room contains personal possessions, to my way of thinking this means that 100% PPR should be available. Now I am not so sure.

I should be interested to know if anyone has encountered application of this section and the outcome or indeed has any practical suggestions so as to ensure that the PPR is retained in its entirety.

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By Anonymous
13th Jul 2009 17:00

Purpose and quality
The notion that, so long as you kept some personal stuff in a room, that preserved PPR, may be a helpful guideline but if you take it as a strict rule then you are likely to run into problems.

I think you have to look at the primary purpose for which each room is used or indeed for which the dwelling is used, and maybe consider things qualitatively rather than quantitatively, if that makes sense.

So if you own a house which is primarily the home of you and your family, but you have a business the records for which are kept in one room and the tools for which go in the garage or whatever, then I think PPR is likely still due on the whole house.

But if you run a business - as seems to be the case here, where customers or clients come to your home for whatever reason - a consultation or treatment of some kind perhaps, and spend a period of time there, then I think things start to shift. I would start thinking about issues such as how long are customers or clients in the house within normal working hours, do you have a business name board outside, is the business one that requires premises clients can come to (as opposed to a plumber say, who keeps his books and tools at home but does his work by definition at customers' premises), do you need to have special things in the home for them to use or for treatment, and so on. Or indeed if you say making something for a client and spend several hours a day doing that with specialised equipment which would have to be kept somewhere.

And what about business rates as well as insurance?

There is never going to be a one size fits all answer on this point and relying on notions like if I keep some personal stuff in this room that is OK seems to me a little risky.

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By pawncob
13th Jul 2009 20:59

It's the law
The legislation says "exclusively" and HMRC aren't changing that. They've never used occasional private use to disallow the claim. I've successfully denied their attempts where the room was only used once a year for a private party. See OED under "exclusive".

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