Mortgage Interest - Use of Home

Mortgage Interest - Use of Home

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Is a proportion of mortgage interest for say 90% business use of a room in a self employed persons house allowable.

If so under what section of ICTA88 or case law. I am aware ESC A89 is no longer in force.

Am I correct in saying A89 was just regarding the interaction of MIRAS and the allowance of interest as a Sch A,DI/II deduction, and the Sch A, DI,II deduction is allowable under some other provision.
David Shepherd

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By AnonymousUser
14th Jan 2002 22:29

use of home for business
I recently asked my local friendly tax inspector this very question -- what was her advise on claiming as a business expense that part of the mortage interest that related to the use of the house for business puurposes.Her comment was she did not know the answer. She much rather that a claim was made of a resonable amount each week to cover all the costs of using the house for part business purposes.

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By DavidShepherd
12th Jan 2002 12:14

ESC A89 / Thanks
John, Paul, Raj, Jay Thanks for your comments.

John I never read the questions properly either, still never seemed to matter too much. I looked at the case which is helpful, together with the rest of your comments as always.

Jay, Raj Sorry I was wrong saying A89 was no longer in force. I should have said obsolete.

However I guess the question I now have is:

Is A89 actually obsolete in practice, or does it still work in effect as a concession to allow mortgage interest to be deducted in part from business profits? If this is the case I would guess the number of potential beneficiaries would not be on a dimishing scale.

David

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By User deleted
11th Jan 2002 19:18

ESC A89
Please advise what makes you think ESC A89 is no longer in force. I have not heard that it has been withdrawn. Obviously the miras elements of the ESC are no longer relevant, but as far as I am aware the rest of the ESC is still current.

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By AnonymousUser
11th Jan 2002 22:29


ESC A89 has become obsolescent. Concessions become obsolescent if they are a closed class, i.e. the number of potential beneficiaries is on a diminishing scale!.

The Inland Revenue issued an ESC Supplement in August/September 2000 in which they said so. The supplement can be downloaded from here:

ir1_2000sup.pdf

Hope this helps.

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By AnonymousUser
12th Jan 2002 20:42

You might need to claim a fixed amount each week

My personal experience is that you only claim business expenses they are incremental such as Light, Heat and Telephone. As to Mortgage Interest, the only case I had some years ago was when the client bought a large property with a view to using part of it for business purposes. In these circumstances, he was successful in claiming the mortgage interest on a pro rata basis.

The question is if no business was being conducted from the premises, would there be a reduction in interest charge? If the answer is no then perhaps some other ways should be considered to claim business element.

Have you thought of claiming say £20 per week use of home as office? The figure of £20 should incorporate use of lighting, heating, and perhaps mortgage interest. Your client might have installed a second telephone line for business so this takes care of itself.

Using 90% of the premises for business purposes indicates that the owner bought a commercial property with a view to trade from it but also to use as living accomodation at night!. He saves on special accomodation costs. Am I too simplistic in generalising?

Regards,

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By Sherlock
11th Jan 2002 11:48

A Controversial Area
In theory the 90% of mortgage interest ought to be allowable, particularly now that no tax relief is given to private householders. The practicalities are considerably more difficult.

Firstly, can 90% really be justified if the taxpayer is living in the property ? Previous Any Answers replies have stressed the need for justification on the basis of the number of rooms and those used wholly or partly for business purposes.

Secondly there is no direct statutory or case law basis for the claim. In effect, relief is given somewhat unofficially by concession. Section 74(1)(a), Taxes Act 1988 talks about expenditure incurred 'wholly and exclusively for the purposes of the business'. Here we are dealing with dual purpose expenditure, and an attempt to persuade the Revenue to allow a proportion.

Case law is little more helpful. Horton v Young 47 TC 60 is the leading case on running a business from home, although it concerned motor expenses.

The above sets out the worst position. Careful negotiation may yield a positive result, but I doubt if the whole 90% will be allowed.

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By DavidShepherd
13th Jan 2002 11:28

90%
Just to clear this up I did mean 90% of a single room in the house. Thanks Paul.

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By User deleted
11th Jan 2002 14:55

Didn't read the question
Thank you, Paul - how did I pass my exams ? 90% of one room is, of course, reasonable. Whether the client will be able to claim mortgage interest remains to be seen. A proportion of other costs such as lighting and heating, repairs, house insurance, cleaning and, in my view, council tax, are certainly claimable.

The only way of establishing the claim is to include it in the accounts and self assessment return. Equally, the Revenue can only dispute it by initiating a (one hopes) aspect enquiry. Drawing attention to the basis of the claim in the 'white space' on the return and accompanying letter could help to smooth the way.

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