As a Business Accountant I get asked this question a lot – “Is my house mortgage tax deductible because I’m self-employed and work from home?” and the answer is quite simple, but likely not the answer you will be hoping for…sorry, spoiler alert!
The simple answer is this:
- Your Mortgage is NOT an allowable expense when self-employed
- The Interest on your Mortgage IS an allowable expense when self-employed
- However only the ‘use of home as an office’ percentage is allowed to be claimed from the interest
The most common time this issue occurs is when someone is self-employed, been living in rented accommodation and worked from home – then decides get a mortgage and continue working from home. If this applies to you then you’ll have been used to claiming the ‘use of home as an office’ amount from the total cost of your rent, however it is not the same when you have your own mortgage. Only the ‘use of home as an office’ from the interest portion of your mortgage is a taxable expense. I know!
How to Claim Your Mortgage Interest as a Tex Deduction
So now that we know you can only claim for the interest on the mortgage, and then only the ‘use of home as an office’ proportion of THAT – let’s now look at how you would claim this in your tax return.
For this example let’s just round up and use the following amounts for the mortgage:
- The mortgage monthly repayments are £900.00 (including interest)
- The mortgage interest is 4%
So firstly we need to calculate how much the total interest is on your mortgage. So for this example it’s simply:
900 (monthly repayment) divided by 100, multiplied by 4 (interest percentage), which equals 36.
So in this scenario you are paying £36 per month in interest, now we need to calculate how much of this you can claim in regards to your percentage of ‘use of home as an office’.
To do this you must firstly calculate how much time you use per month in regards to working from home. So for this example let’s use the following amounts for ‘use of home as an office’:
- You work Monday to Friday 9am to 5pm from home – equalling 8 hours per day
So to calculate your percentage of use as an office you simply use the following equation:
You use your home as an office for – 8 hours per day, 5 days per week, 22 days per month (approx) – this equals 176. So you work from home approximately 176 hours per month (8 hours multiplied by 22 days).
There are a total of 24 hours per day, 30 days per month available – this equals 720. So there are a total of 720 hours every month.
You work 176 hours out of 720 hours, so to calculate this as a percentage you must do the following equation:
176 (hours worked) divided by 720 (total hours), multiplied by 100 = 24.4%
This means you can claim 24.4% of your mortgage interest every month. So we’ve established that your total mortgage interest per month is £36.00 and now you know you use 24.4% of that for your business. One final equation:
36 (interest amount) divided by 100, multiplied by 24.4 (percentage of use for business) = 8.78
So in this scenario you can claim £8.78 per month on your tax return, equalling a total of £105 per year of claimable expenses for your mortgage interest. It’s not great is it? Compared to being able to claim from the total rental rate of rented accommodation as you may have been doing previously.
Therefore if you’re not liking how these figures look for offsetting against your tax bill then my advice is this – if you can afford to then rent an office space! This allows you to claim the whole rental amount since it’s 100% ‘solely and exclusively’ for the purpose of your business. Otherwise you’ll only be able to claim a very small portion of your mortgage costs.