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Sam, Accountant
Category: Tax
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Sam, I have a question regarding private use adjustment

Customer Question

Sam, I have a question regarding private use adjustment on my UK property pages of my self assessment return, also a CGT question regarding this.
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.

Thanks question
Please could you advise why you need to make a private use adjustment?
Do you have lodgers and remain living at the property, and who uses your workshop ?
As rental income is not business income unless you offer furnished holiday letting.
So please advise further and also ask your capital gain question
Customer: replied 3 years ago.

Thanks reply.

I have spoken to HMRC on several occasions, but want a second opinion, and preferably direction to something written, such as a manual - so far HMRC have only given a verbal reply and cant point me to any direct reference material, I have looked through some of the PIM, CG64700-64750 and BIM47805-47820 manuals as best I can written confirmation - but cant find a definitive as to what areas of a dwelling house can be claimed usage.

I have a semi detached house, it is my primary residence, I am the live in landlord.
I have been letting rooms in my house 10 years.
I have had 4 lodgers, in 4 of the rooms last 5 years and had 3 lodgers in 3 of the rooms 5 previous years - these areas have been used exclusively as lettings.
When I started letting, 10 years ago I was advised verbally by HMRC to use a fractional calculation (ie 1/4 or 1/5) - but as I have looked closer I feel this might not be correct (reasonable).

My lodgers have a 'license to occupy' rather than a AST tenancy.

I have been self employed up till 31/03/2013, from 01/04/2013 I incorporated my business into a Ltd company.

In 2010 I constructed a workshop (approx 30 sq mt) in my back garden and started to use it self employment activities, it also has my gym equipment and drum kit in there, I also sleep in there at night - so the work shop is not exclusively used purposes.
In 2010 I also converted a run down garage adjacent to my workshop so it could be used to store some of my stock, clients work, and jobs in progress - I also store a small number of non business items in there such as tools, bicycle etc.

My garden is less than half a hectare.

I have measured all internal rooms in the house, workshop and store room. When using actual room size as opposed to a fractional calculation Usage - I arrive at quite different figures apportionment, and I consider floor area the fairest as it is more accurate. At present using what I've been told by HMRC - with the workshop included - 50% of the floor area is Private Usage, but going the fractional way it is 1/5 (myself and 4 tenants) which is only 20%, a big difference. Up till 2012 I have been using the fractional basis.

To calculate the Private Usage Adjustment - when working out the amount of expenses I can claim on my Tax Return, I am trying to establish what rooms can be included as Private Usage - calls to HMRC inform me that shared areas of the hall, landing and stairs cannot be included as Private Usage, and neither can the bathroom, but the kitchen can be included. My workshop can also be included as 'Private Usage', as its seen as part of my home, would the same go 'store room' then too ?. Again this is all verbal from HMRC.

Would HMRC would be happy with me claiming the workshop as part of my private usage, I question how a bathroom, which is plainly a shared area tenants - not be included, but my workshop - which is not shared can be included.

I also want to know the CGT implications, as this year I will develop my property and split the house into two flats, obviously with the Private Usage Adjustment calculation, I assume this implys how the apportionment Residence Relief is calculated (ie 50% Private Use) - and that figure will have an effect on the amount of CGT paid, so want to get that right, I also want to confirm there will be no CGT on my workshop - no part of it is used exclusively .

I will need help calculating that figure - CG65271 gives examples, but need some help at this stage just to get an idea of my forthcoming liability.


Expert:  Sam replied 3 years ago.
Thanks question
The ration you were instructed to by HMRC in view of having lodgers living in your main residence is accurate - although looking at which rooms are communal (excluding bathroom, hallway, and kitchen) and any room used exclusively are excluded. So if you had 6 rooms - one of which was yours and two communal and 3 lodgers then 3/6th of the costs (interest on mortgage, heating and lighting, insurance etc would be a viable claim from the rents received.
You are not running a trade (within the element of rental income) so the usual rooms method or square footage method would not apply in this case.
And as your rents are in excess of the rent a room relief of £4250 - then you have to use the usual rental income expenses regime out of pocket expenses and you have to bear in mind you would incur most of these costs (at the same rate) if you lived there alone, so the amount you can claim is in fact more of a concession hence the room ratio method.
Then you have self employment and the work shop is very much just I cannot see any business use arising - can you advise what your self employment (now limited company) trade actually is ? And how you come to the conclusion your workshop has any business use element - is there a room within the workshop that is separated from the place you have the gym, drums and sleeping quarters, please advise further.
Does the converted garage use any heating or lighting? What costs do you incur through use of this areas ?
I then will advise that you cannot have the room ratio income and then have it counted again purposes - (or if you do then this needs to be split accordingly.
But there is no need to make deductions usage you merely in both the property expenses ration claim the apportioned amount - the method to make a deduction use would be - say when you have rented out business premises, and there was an additional room which you converted to be somewhere to store furniture that was your home, in between a house move - this would then require a small private use deduction from an expense that was business first and foremost.
As your property expenses are personal first and foremost from which a proportion is being deducted reasons - can you see the difference.
As property split, will you live at all in the property when converted into two flats - how this this work, then I can offer the considered capital gain position
Customer: replied 3 years ago.


Thanks swift reply.

"and any room used exclusively are excluded" -
HMRC told me the opposite - any rooms used exclusively by the lodgers formed the area of 'gain' - and I assume rental income, and any rooms I share or use - for 'Private Use'

Ok, so as its my primary residence, despite most of it being let out - its not seen as a business ?

Yes 50% floor area - also seemed wrong, unless of course you include my workshop - as that is part of my home (I sleep, work out and practice my drums in it) - although I also happen to use it as a workshop business, a bone of contention here.

So far I have not included my workshop or store room in calculations to date.
I produce large graphics events, in my workshop - it is one large area (30 sq mts in size) I have a 60" printer to produce them on, a large laminator to mount and finish them, a large 4x8' bench, 3 desks with PC workstations on, there is also some stock in there with cabinets on the walls and self standing shelves - all with work related books, files and small tools needed business. Roughly in the middle of the floor I have my drum kit and Weider Fitness Frame, I also have a mattress I pull down from the wall - and sleep on that at night. It has electric heating and light fed from the main consumer unit in the house, it has no water or plumbing installed (this and its size makes it an 'exempt outbuilding' - from a local council Planning and Building Control perspective)
The store room is walked through to get to the workshop, this is an old concrete garage - that was derelict, it has had doors fitted at each end -and the inside panelled out and insulated, its is heated and light - again by electricity from the consumer unit in the house.
Is this part of my home ??

I have never made any business claim expenses relating to my use of the workshop or storage area as a business through the Self Employment pages of my self assessment Tax Return, nor with my newly formed Limited company. The one room in the house I occupy (a bedroom) in the house is used mostly as an office during the weekday - it has a bed and TV in it which I share with my girlfriend when she comes to stay at the weekend, but also a desk and PC workstation.
I sleep during the week day nights in my workshop.

Re CGT - yes I will look to keep one of the flats and my workshop in the portion of garden I keep, I will sell the other flat leasehold.



Expert:  Sam replied 3 years ago.
Thanks response
Rooms used only by you form a personal use of heating lighting and the proportion of other arising expenses, you are only permitted to claim what is incurred by virtue of the fact that you have lodgers!
And this has been what you have been claiming - according to you - as your stated that
I have been letting rooms in my house 10 years.
I have had 4 lodgers, in 4 of the rooms last 5 years and had 3 lodgers in 3 of the rooms 5 previous years - these areas have been used exclusively as lettings.
When I started letting, 10 years ago I was advised verbally by HMRC to use a fractional calculation (ie 1/4 or 1/5) - but as I have looked closer I feel this might not be correct (reasonable).
You cannot use floor area as already advised, but as room count goes you do NOT include the workshop OR the store as none of these have any use or availability to the tenants, as part of the let agreement, (its fair to say you may invite them to use the gym perhaps, but this is an invite to use your private area rather than part of the rental position)
No you do not run a business with the rental income - there is no trade, only B & B and Furnished holidays lets,fall into the remit of being business (as in a trade ) and this is because additional services are provided beyond the provision of a room rental and the stays from "guests" is one of a temporary nature and you merely collect rents from lodgers which is not a trade.
And the income above from rents should be declared within the self assessment as Income from property
Then you have your self employed business which IS a trade (started as a sole trader and now limited company) as you have no one room set aside exclusively , a token claim of £3 a week and lighting would be permitted by HMRC against your business profits.
And the garage is mere storage area, and is NOT counted (nor would be the workshop) counted purpose but may have a consideration of costs to claim against the business you run, however as its a walkway in essence to get to the workshop - this does cloud the issue, and really would not give rise to any real claim against the business.
Then you state you have a room within the main house used as an office during the day but also used as a bedroom when your girlfriend comes to stay - so is a bedroom first and foremost - and as you have all your trade business equipment in the workshop, I cannot image there is much "office" work arising from the business that could be undertaken in the workshop and probably is undertaken there.
I shall let us exhaust this topic before I even look at the Capital Gains tax position, as this is becoming far more complex than your question originally suggested - may I ask why the sudden concern over what has previously been claimed ? As it would seem to date (other than some business expenses trade you do operate) that you have been making reasonably correct claims of the property.
And I am sure you can appreciate - the advise I get is my expert opinion based on many years working , providing education to individuals such as yourself, and knowledge I use now within my own accountancy practice, and if there was anyway to offer flexibility or a more favourable way to claim - I would most definitely offer it to you.
Customer: replied 3 years ago.


Thank you some of the various points, yes sorry it is complex - but that's why I am here.

I am happy to accept your many years of experience, but will want to see where you get your information - so I feel comfortable in my mind with what I am being told.

My concern lies with the amount of CGT I will pay when I split the house and how I have been calculating Private Use Adjustment, after many calls to HMRC I still am no wiser - and what you tell me today goes against what they have said verbally, at least on here I can give a clearer picture - and after contacting you today I am relieved on the one hand to know I have been doing it right all these years, but concerned on the other that HMRC will penalise me heavily with taxes had lodgers when I come to sell a flat off.

"you do NOT include the workshop OR the store as none of these have any use or availability to the tenants" - confused - my 'bed'room in the house has no 'use or availability to the tenants' they are not allowed in there, yet it is Private Usage, maybe I should stop calling my outbuilding a 'workshop' - my understanding of a home/dwelling is that it can include outbuildings, can you point me to the HMRC reference manual/s that explain all this.

Many Thanks


Expert:  Sam replied 3 years ago.
We have two issues here and you seem to be crossing the intention from one into the other - and that's what is making all of this seem so complex, so lets break it down in simple terms
You have rent from lodgers which cannot be exempt under the rent a room scheme due to the fact that you
1) have more than one lodger and
2) Gross more than £4250 rents a year
So the income (rents) allow you to claim the relevant expenses against them.
Your main expenses are going to be those incurred within the property itself and its about establishing which rooms are utilised by the lodgers exclusively - and the simplest way is merely count how many bedrooms there are - and how many are utilised by lodgers.
If 5 bedrooms and you had 3 lodgers - then 3/5ths of 4 lodgers and 5 bedrooms then 4/5ths and so on and so forth. Its that simple. And you can see the workshop has NO bearing nor does the garage that's not the store or the communal areas.
But you have a choice due to the fact this is still your residence
1) you have the first £4250 exempt and then pay tax on the excess (so no expenses claimed OR
2) You are treated under the normal rental income rules
See link here legislation
So you clearly have opted to be treated under the normal rental income rules so far (although you do have the right to change from one year to the next and opt method that is more favourable to you as long as HMRC is notified within appropriate time limits) so then need to establish the allowable expenses to offset against the rents and how these are calculated.
So as we then consider normal expenses within the rental income remit - and you then have to apply the wholly and exclusively rule - so that is why you are being advised on the room ration (and not square footage)
This is the main legislation
But then it offers a more in depth look when part of a property is used use (which is the case here)
So you can only have those expenses that are incurred by use of that room by lodgers.
So that's the rental side of matter covered, and basically the same applies to your business that you run, which clearly used the workshop (that is your midweek bedroom, and a gym and where the drum kit lives) a store room which has minimum costs and a bedroom within the home that you use at weekends that you sometimes use as an office.
But apart from the store room these other two rooms have a dominating private use rather than business, but you should be considered viable claim of some out of pocket costs.
So the Business Income manual also considers whether an expense room fits the wholly and exclusively test which your does not - so what can be allowed looking at wholly and exclusively
And this is the main listing which you can apply to you (I did advise £3 a week - but its somewhere between as a flat rate monthly figure has been created)
Ok so I am sure you can see the whole matter of the expenses of the property has been fully covered and backed up by legislation
If we can move on from this I can then spend some time addressing the capital gain position and what having lodgers has meant and splitting the flats in the future will mean .
The ratio split of the rooms used by lodgers (which are the allowable premises costs to offset against the rental income)
Customer: replied 3 years ago.


Thanks links, all read.

I opted out of the rent a room scheme straight away when I started renting, so its income less expenses (expenses less private Usage) as you say on my Property Pages since I started

I agree I have four tenants in four rooms, who have wholly and exclusive use - this constitutes the rental business portion.

My main question here is trying to establish the area of 'private use' I have in my house - 'private use adjustment' fractional calculation of expenses.

Is it the type of exclusive use of the room that is the deciding factor as to whether its private or not ?

So I cannot include the outbuilding I sleep in or work out or practice my drumming in - as its also used and so not exclusive - would that then not also apply to my bedroom ? - that is not exclusively my bedroom - but a glorified office during the week where I spend many hours preparing files and dealing with admin matters.
Several houses in the road have buildings of similar size and shape with people living in them built in the back garden, I would definitely class them as a residential dwelling space - but again in my circumstances this type of area Im possess is not used exclusively use - so cant be treated as exclusive Private Use.

Theoretically - if no equipment existed in the outbuilding - and it was more like one of these residential spaces - with an identical amount of business use my bedroom gets (admin with one computer workstation) - would it not then count as private usage ?

However - you view my bedroom as the only exclusive 'room' used by me, which I accept if that is what you judge to be correct.

In essence I think your saying - if it looks like a bedroom in a residential property then it is a bedroom - if it looks like a workshop in a back garden then it is a workshop, and most importantly the usage must be exclusively Private.

So the fractional calculation is: one live in landlord, and four tenants - so its 1/5th of expenses Private Usage Adjustment.

Regarding the claim of the outbuilding as an office by my business, £3 seems a poultry amount - I am not a mini cab driver who needs to simply sit at a desk and write up a few dockets - my demands on the space are greater than that, can a portion of bills not be claimed space, I thought then Wholly and Exclusively rule allowed that.

If you can be so kind as to answer those questions and we will move on to the CGT question.

Many Thanks


Expert:  Sam replied 3 years ago.
Thanks response
You do NOT have to establish the private area, but the area on which the lodgers are using -
This is NOT a business expense from which you then deduct private usage - you just establish the amount from the total private cost that is attributable to business.
So you just count up how many bedrooms there are and then would have claimed the ratio of bedrooms used by lodgers - so lodgers in bedrooms/total bedrooms x costs -
The wholly use is the business or rental use - not the private use - I do not understand why you are so fixated on the private use when the self employed business (now limited company) and the rental income - the private usage has NO bearing
Whether you think £3 is a paltry amount or as per the tables which list hours of usage and a monthly figure I am afraid is not my decision - these are HMRC rates and as you do not have any room set aside exclusively business - then cannot claim anything more than those flat rate amounts.
And if you worked more than 101 hours a month in the workshop then can claim £26 a month (which is just under £7.00 a week)and no you cannot claim a potion of bills and you use no room wholly and exclusively as explained several times
Customer: replied 3 years ago.


Thanks reply, makes a bit more sense with that last reply.

CGT here are assumed figures conversion:

Bought the property 04/2003, paid £250,000

1st lodger from 08/2005

2 lodgers from 09/2005

3 lodgers 11/2005
3 lodgers 06-07, 07-08, 08-09, 09-10
4 lodgers 10-11, 11-12, 12-13, 13-14, 14-15

Assuming development of house into two flats, and a sale of one flat around October/Nov 2015:

Flat 1 Value £400,000
(I will retain this flat and live in it)

Flat 2 Value £430,000
(Flat Sold)

Cost of conversion: £25,000

Unconverted Value at Oct/Nov 2015 £550,000

I have looked at CG65271 but need to know how I calculate the CGT with Private Residence relief and Letting relief as I have let part of my home (as above). Could you show me your workings please.



Expert:  Sam replied 3 years ago.
Thanks question now on capital gains
I hope that you appreciate that a full calculation on this is far more than your original question suggested with the full complexities of your needing points on expenses on rental and a business and private use, which has already taken 2+ hours of work very small fee. (and this additional work is going to take at least another hour to make the calculation due to the different time scales of lettings and also the conversion
I shall undertake the calculation , but it will be an estimate based on the information you have provided , and not to be used gains submission ,. as you will need to seek accurate calculations when one of the flats is sold (or if this never takes place when the house is sold)
I would need to know is your bedroom going to still remain in Flat 1- and will you continue to have lodgers in Flat 1 - if so how many, and how many bedrooms will remain there
How many bedrooms there are in total in the house as it currently stands
Flat 2 - will this be rented out to tenants until sale time -
When will the conversion take place - and will you continue to have lodgers during this conversion time.
Customer: replied 3 years ago.


I appreciate the extra time you have spent, thanks, ***** ***** my first time using this service so am finding my feet.

To answer your questions:
Yes I will have a bedroom in the retained flat, and have two lodgers, it will have 3 bedrooms.

At present there are 5 bedrooms in the property, up till 2010 one of these bedrooms was a shared living room.

Flat 2 will be sold straight after conversion.

The conversion will start 01/04/2015, from this date I will retain tenants, albeit with one less tenant (total 3), the conversion will finish 6 months later 30/09/2015 and flat 2 will be put on the market and I and my tenants will move into flat 1 om 30/09/2015, the garden will be divided, I will retain my workshop and store as part of the flat one properties garden space.

Sorry I should have added - a hip to gable loft conversion on the property (cost £25k) will be finished and occupied 01/04/2015 this will add one bedroom to the unconverted property (total 6).



Expert:  Sam replied 3 years ago.
You must be aware this is very approx., as this would serve to be a very time consuming exercise with so many variables, and I appreciate that you may not have used Just Answer before, but a fair price offered the amount of work and the complexities are usually considered, as the high street accountant would have cost you £500+ so far!
If you sell Nov 2015 you will have owned this property months
months this was your sole residence so 28/151 of gain due PPR
months 75% was your sole residence so 1/151 x 75% PPR
Then months 50% was your sole residence so 2/151 PPR
Then months 25% was your sole residence so 54/151
Then you converted a living room to a bedroom which made 5 bedrooms and from April 2010 to April 2015 so 60 months 20% was your PPR 60/151
Then you plan to convert in April 205 - and sell flat 2 which will cease to be your PPR from April 2015
So the sale of flat 2 will be considered as follows as this is the only one on which Capital gains would be considered on at this time (although you will remain having a gain throughout on Flat 1 too)
Sale value approx. £430,000
Less half conversion costs and sale costs £12500
Less purchase price (which will be approx. £125,000 (although this will need tweaking)
So total gain on flat £292,500
Then the PPR to be applied
months this was your sole residence so 28/152 x £292500 = £53881 of gain due PPR
months 75% was your sole residence so 1/152 x £292,500 = £1921 x 75% PPR = £1440
Then months 50% was your sole residence so 2/152 x £292,500 x 2/152 = £3648 x 50% = £1924 PPR
Then months 25% was your sole residence so 54/152 x £292,500 = £ 103914 x 25% = £25978 PPR
Then you converted a living room to a bedroom which made 5 bedrooms and from April 2010 to April 2015 so 60 months 20% was your PPR 60/152 x £292,500 = £115460 x 20% = £23092
Then 7/152 x £292,500 where you will have a full gain as will not be occupied by you = £22680
So of the £292,500 gain you have an exemption under the private residence relief on £292,500 of £106315 which leaves a gain of £186,185 to consider
Then the remaining months of Flat 2 from April 2015 to Nov 2015
Then you have private lettings relief due which is the lesser of
1)The amount of PPR due - which amounted to £106315
2) The amount of gain left over after PPR has been utilised - which amounts to £186185 OR
3) £40,000
As the lesser amount is 3) £40,000 this is then permitted and deducted from the gain of £186185 = £146185 liable
The first £11,000 (current annual exemption allowance) is deducted - leaving you liable on £135,185
If a higher rate taxpayer than this will be charged at 28% = £37851.80 and if a basic rate taxpayer (earning less than £41865 a year) then some of the gain will be charged at 18% (to reflect the unused basic rate band) and the remaining at 28% - so between £30,000 and £37851.80
I have not taken into account to loft conversion as you do not indicate whether this affects Flat 1 (where you will live) or Flat 2 which is to be sold.
Expert:  Sam replied 3 years ago.
Thanks - it would be appreciated if you could rate the level of service I have provided.
Customer: replied 3 years ago.


Thanks reply, although I've not had a chance to look at it yet, and I am away until early next week, but will do so then and do the rating etc also.



Expert:  Sam replied 3 years ago.

That's fine