Can I expense my mortgage?

From filing taxes to virtual meetings to sorting invoices and more, home is the new work hub. And it has its perks – less commuting time, your own personal space and greater flexibility 🤸

But, with the good comes the not so good. Working from home isn’t always cheap. Frequent use of your broadband, electricity and heating is sure to drive up your household bills. So how can you keep perks high and costs low – and, most of all, can I expense my mortgage? 🤔

OK, what is an expense? 

Good question! 

Expenses are costs incurred from the day-to-day running of a business. If you work from home, these may include: 

• Broadband
• Electricity
• Heating
• Water
• Office furniture

The good news is, depending on your situation, you can claim your expenses against your earnings and pay less tax.

So, can I expense my mortgage? 

We’re afraid not. 💔

If you’re self-employed and work from home, you won’t be able to expense your mortgage because you’re already entitled to the simplified allowance. 

The simplified allowance is a flat rate expense (£312) which self-employed people can claim against their business expenses instead of working out individual costs. It also allows you to reduce your self-employment tax bill. It’s a great hack to know about if you don’t have big expenses, can’t find your receipts, or don’t want the hassle of gathering data if HMRC query you. 😅

How to make the most of working from home 

If you’re self-employed and working from home, here are a couple of hacks 🪄: 

What’s the ‘use of home as an office’ allowance? 

The Home Office Allowance is a flat rate that you can claim if you’re self-employed and use your home for work. 

Audience cheers! 👏

It’s done through a system known as simplified expenses. The amount of Home Office Allowance you can claim depends on how many hours you work from your home each month.

How do I calculate my ‘use of home as an office? 

You’ll need to calculate a percentage of all home costs, including mortgage interest (not mortgage repayment) and claim the appropriate amount as an expense. Sounds a bit tricky, right? Well, don’t worry – we’ll break this down too.

Start by calculating the total interest on your mortgage using:

(monthly repayment ÷ 100) x interest payment = total interest on your mortgage

Let’s follow this example: 

• Your monthly mortgage repayments are £800 (including interest) 📅
• And the interest on your mortgage is 3% 📈
• 800 ÷ by 100 x 3 = 24 ✨

I’ve calculated my interest, what’s next?

Now you know that you owe £24 each month in interest, you’ll need to calculate how much of this you can claim as part of the ‘use of home as an office’ allowance.

To do this, here’s what you need to do:

• First calculate how much time you spend working from home in a month e.g. Mon-Fri 9 to 5. That’s 8 hours per day
• Calculate your percentage of ‘use of home as an office’ by using a formula
• (hours worked in a month ÷ total hours in a month) x 100
• If you use your home as an office 8 hours a day, 5 days a week, that’s 160 hours per week, ~720 hours a month ⏰
• So, 160 (hours worked in a month) ÷ by 720 (total hours in a month) x 100 = 22.2% 
• You can claim 22.2% of your mortgage interest every month 

Now, you can calculate how much you can claim on your tax return. £24 (interest amount) ÷ 100 x 22.2 (percentage of use for business) = 5.32 

That’s £5.32 per month that you can claim on your tax return, equalling a total of £63.84 per year.

Will I need to pay Capital Gains Tax?

If you own a property and choose to use the ‘use of home office’ method, you’ll need to think ahead 🔮

Claiming the ‘use of home as an office’ from the interest on your mortgage for many years and/or adding renovation costs could increase the percentage of the property which is not your Private Residence. This means you may have to pay Capital Gains Tax if you decide to sell your property in the future.  

Read more about this in our guide about when you owe CGT if you sell your house. 

Capital Gains Tax is the tax you pay when you sell an asset (a property, shares, Bitcoin, personal possessions etc.) for a profit. Any profit you make is known as a capital gain.

So, what’s our advice? 

In most cases you’ll get more bang for your buck with the simplified allowance (£312) + broadband. 💸

That’s unless you pay a lot in rent for a small shared space e.g. London. This is because your costs are probably higher. Plus if you’re renting, you don’t need to worry about Capital Gains Tax. You only pay this when you sell an asset (property, shares, personal possessions) for profit.

So now you know the ins and outs of expensing your mortgage. Will it be back to the office or back to bed? A question for another day.