Using Your Home as an Office: What You Can Claim and How It Affects Tax
With more founders and directors closing their physical offices, a common question arises:
Can I claim a portion of my home costs through my limited company?
And if so, how does that affect things like capital gains tax when I sell the property?
This guide breaks it down with real examples, figures, and clear explanations so you can make an informed decision.
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1. Two Main Ways to Claim Home Office Costs
When working from home through your limited company, there are two common approaches:
Option 1: Flat-rate allowance £6/week (£312/year)
HMRC allows directors to claim a flat rate to cover minor home-working costs.
- Pros: No record-keeping required, no impact on your home's tax status, easy to justify
- Cons: Capped at £312/year – modest if you work from home full time
Option 2: Claim a proportion of actual home expenses
This involves claiming a fair share of household costs, such as:
- Rent or mortgage interest (not capital repayments)
- Utilities (gas, electricity, water)
- Council tax
- Broadband and phone
You calculate the business portion using apportionment by rooms and time.
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2. How to Calculate Your Home Office Claim
Let’s say your home includes:
- 3 bedrooms
- 1 living room
- 1 kitchen
You exclude hallways and bathrooms, giving 5 rooms.
If one is used exclusively as your office, that’s 1/5 or 20%.
Now let’s apply that percentage:
| Cost | Total Monthly | 20% Claim |
|----------------|---------------|-----------|
| Rent | £1,500 | £300 |
| Gas & Electric | £200 | £40 |
| Broadband | £40 | £8 |
| Council Tax | £250 | £50 |
Your company could justify a claim of around £398/month.
This leads to a choice of treatment:
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3. Charging Rent vs Reimbursing Costs
A) Charging Rent via a Licence to Occupy
You create a legal agreement where your company pays you rent for use of the office space.
- The company deducts this against corporation tax
- You declare the rent as income on your Self Assessment
- You can deduct a share of mortgage interest or rent personally
BUT this route may impact Private Residence Relief (PRR) when you sell the property.
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B) Reimbursing Home Expenses Without Rent
Instead of charging rent, you can have the company reimburse a fair share of home costs (e.g. utilities, broadband, mortgage interest).
- No rental income to declare
- Still tax-deductible for the company
- PRR remains fully protected as long as there’s no formal licence and the room isn’t used exclusively for business
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4. What About Capital Gains Tax?
Under normal rules, your main home is exempt from Capital Gains Tax (CGT) thanks to Private Residence Relief (PRR).
But if you:
- Use part of your home exclusively for business, and
- Charge rent via a formal agreement
Then that portion may lose PRR status and become taxable when you sell.
Example:
- 1 room out of 5 used exclusively for business = 20%
- House gains £100,000 in value
- 20% (£20,000) becomes taxable
- At 20% CGT = £4,000 tax liability
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5. How to Protect PRR
To preserve 100% Private Residence Relief:
- Do not charge rent to your company
- Do not sign a formal Licence to Occupy
- Allow occasional personal use of the room (e.g. guest space, reading nook)
- Avoid claiming capital allowances on fixtures or fittings
These safeguards ensure your home remains fully exempt from CGT.
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6. Summary Table
| Method | Company Deduction | SA Reporting | PRR Impact | Admin Required |
|------------------------------------|--------------------|---------------|-------------|-----------------|
| Flat-rate allowance (£6/week) | ✅ Yes | ❌ No | ❌ None | ✅ Very low |
| Reimburse proportion of home costs | ✅ Yes | ❌ No | ❌ None | ✅ Low |
| Rent via Licence to Occupy | ✅ Yes | ✅ Yes | ⚠️ Possible | ⚠️ Moderate |
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7. Our Recommendation
For most directors, a flat-rate claim or careful apportionment of actual costs is the safest route.
You can deduct a share of mortgage interest and bills without triggering CGT issues — as long as you avoid exclusive use and formal rent agreements.
If you're working from home full-time and want a more aggressive deduction, a Licence to Occupy may be appropriate — but only if you're fully aware of the potential PRR implications.
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Need help setting this up properly?
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