Does Working From Home Affect Principal Private Residence Relief ?

There is a tax myth about business owners’ capital gains tax position if they sell their main residence, which they also use as a place of work.

 

Some business owners are being put off in maximising their tax deductible expenses for their ‘office use of home’ as they are prejudicing their capital gains tax position when they sell their main residence.

However, in general, any gain on disposal of their home will be completely tax free even if the property expenses have been claimed as a business expense.

Therefore, a room which is used partly for business purposes and partly for residential purposes will not restrict the relief.

For Example

Mrs Forbes runs a marketing business from home. She uses one room in her residence as an office from which to run her business during the day, but her children use it as a study room in the evening.

There would be no restriction to the Principal Private Residence Relief even though a proportion of the expense of heating and lighting are deductible from Mrs Forbes’ income profits.

Extreme Cases

Mr Franco has a dental surgery attached to his house which he only uses exclusively for his business. Therefore, Principal Private Residence restriction will apply.

In order to protect the exemption, all that is necessary is to ensure that any part of the home that is used for business purposes is also available for private use.