If you manage your rental properties from home, HMRC gives you two ways to claim a deduction against your property-business profits. One is easier and never costs you anything on sale; the other is more generous and can quietly cost you tens of thousands of pounds in lost capital-gains relief when you eventually sell. The difference matters most for landlords with a dedicated home office in a high-value family home, but the principle applies across the board.

This page walks both routes, surfaces the CGT trap most landlord-press content does not mention, covers the Ltd Co landlord variation, and sets out the records HMRC expects.

The Two-Method Choice in One Paragraph

Under ITTOIA 2005 s.272, the trading-income deduction rules apply to the property-business profit calculation. That gateway brings in two home-office routes. The simplified flat-rate under s.94H gives a monthly figure based on hours worked at home: £10 for 25 to 50 hours in the month, £18 for 51 to 100 hours, and £26 for 101 hours or more. The actual-cost apportionment route under s.34 (the wholly-and-exclusively gateway) lets the landlord claim the business-use share of household running costs (utilities, council tax, insurance, repairs, mortgage interest). The simplified route requires no record beyond an hours log and carries no CGT downside. The actual-cost route can produce a larger deduction but triggers the TCGA 1992 s.224(1) PPR restriction if the landlord characterises a room as exclusively for the business.

How to Claim the Simplified Flat-Rate (ITTOIA 2005 s.94H)

The simplified flat-rate is the easier route by a considerable margin. There is no apportionment, no business-use percentage of utilities, no measurement of the office area. The landlord logs the hours worked at home on property-business activity in each month and claims the corresponding monthly figure.

The three bands, current at the time of writing (verify against the current gov.uk simplified-expenses guidance, which is the authoritative source for any rate adjustments):

  • 25 to 50 hours of home-business work in the month: £10 a month.
  • 51 to 100 hours: £18 a month.
  • 101 hours or more: £26 a month.

An annual claim for a landlord working ten hours a week on the business (typically around 40 to 50 hours a month) falls in the £10 band, producing a £120 annual deduction. A landlord with a larger portfolio working 20 hours a week (typically 80 to 90 hours a month) falls in the £18 band, producing a £216 annual deduction. A full-time landlord (101+ hours a month) takes the £26 band, producing £312 a year.

The flat-rate deduction is simple to operate and resistant to HMRC challenge because it is mechanical: the only thing HMRC can usefully test is whether the claimed hours band is plausibly supportable, which is a low evidential bar in most cases. Critically, the simplified route does not require exclusive business use of any part of the dwelling, so it does not engage the s.224(1) PPR restriction on eventual sale. The family home remains entirely within Principal Private Residence relief.

How to Claim Actual-Cost Apportionment (ITTOIA 2005 s.34)

Actual-cost apportionment routes through the wholly-and-exclusively trading-income gateway at s.34. The deduction is the business-use share of the relevant running cost.

Apportionable cost categories are:

  • Variable costs (utilities). Electricity, gas, water, broadband, telephone. The business-use share is typically calculated by floor area multiplied by time-use, or by separate metering where the office is sub-metered.
  • Fixed costs (occupancy). Council tax, insurance on the home, mortgage interest (the business-use share is allowable; pure capital repayment is not), rent if the landlord is themselves a tenant, repairs and maintenance.

The standard apportionment formula is the business-use floor area divided by the total floor area, multiplied by the business-use time divided by the total time the home is in use, multiplied by the relevant cost. For a £4,000 annual electricity bill, a dedicated office of 12 square metres in a 120-square-metre home (10 percent of floor area), used 40 hours a week of a 168-hour week (24 percent of time-use), the apportioned annual deduction would be £4,000 multiplied by 10 percent multiplied by 24 percent, equal to £96. The arithmetic is straightforward; the discipline is the apportionment build and the contemporaneous documentation.

For a landlord with a dedicated office room and a £15,000 annual home-running-cost base (across all apportionable categories), the actual-cost apportionment can produce a deduction of around £300 to £600 a year, depending on the room-and-time-use parameters. That is more than the simplified-rate annual ceiling at the highest band (£312) for many portfolios, but the size of the gap shrinks once the CGT trap is taken into account.

The CGT Trap: When Claiming the Deduction Now Costs You More on Sale

This is the angle that landlord-press content rarely surfaces. TCGA 1992 s.224(1) provides that where part of a dwelling-house is at any time during the period of ownership used exclusively for business purposes, the Principal Private Residence relief at s.222(1) is restricted: the portion of the gain attributable to the business-use part is not exempt.

The trigger is exclusive business use. If a landlord claims actual-cost apportionment on the basis that the second bedroom is used exclusively as a property-business office (no personal use, no occasional guest stays, no family room), the relief is restricted on disposal. For a typical £500,000 family home with one of seven rooms used exclusively for the business, around 14 percent of the eventual capital gain becomes chargeable at residential CGT rates (currently 18 percent at the basic-rate band and 24 percent at the higher-rate band from 6 April 2024). On a £200,000 gain on disposal, that is £4,032 to £6,720 of additional CGT.

The restriction sticks to the periods of exclusive business use. A landlord who used the room exclusively for the business for 10 of their 25-year ownership of the home suffers the restriction proportionate to those 10 years, not the full 25. The arithmetic is built up year by year on the s.224(1) disposal computation.

How to Avoid the CGT Trap

There are three practical routes.

Route 1: Use the simplified flat-rate. The s.94H route is hours-based, not exclusive-use-based. PPR relief is unaffected on disposal. For most landlords with modest property-business hours and a high-value family home, the simplified route is the better economic answer once the CGT downstream is factored in.

Route 2: Use actual-cost apportionment with documented mixed-use. The s.224(1) trigger is exclusive business use. A room used 95 percent for the business and 5 percent for personal purposes (a family guest stays once a year, the family uses the desk for personal correspondence on Sundays, the room doubles as a quiet reading space) is not used exclusively for business. The actual-cost apportionment can still apply (at the 95 percent business-use share), and the room is not within the s.224(1) restriction. Document the mixed-use contemporaneously: a calendar note of the guest stay, a photograph of the room set up for personal use, a written usage policy.

Route 3: Apportion by time-use only, not by exclusive-room. Run the actual-cost apportionment using only a time-use percentage of the whole home's running costs, without identifying any part of the dwelling as exclusively business. This produces a smaller deduction than the room-and-time formula but avoids the s.224(1) characterisation altogether.

What About the Ltd Co Landlord?

Where the landlord operates through a limited company, the home-office mechanic shifts to a different statutory route. There are two operational choices.

Option A: ITEPA 2003 ss.316A and 317 employer-provided home-working allowance. The company pays the director a flat homeworking allowance of £6 a week (£312 a year) as the HMRC permitted amount, payable without PAYE or NIC. Higher amounts are payable, but only with substantiated evidence of actual costs and with PAYE and NIC consequences. The company deducts the allowance against corporation tax. No CGT consequence on the director's home because the director has not characterised any part of the home as exclusively business.

Option B: Formal home-office rental. The director grants the company a written licence to use a defined home-office space at an arm's-length market rent. The company pays the rent to the director, deducts it against corporation tax (CTA 2009 s.54), and the director declares the rent personally as property income, with the property-business framework (s.272 plus s.94H or s.34) self-applying on the director's individual side to compute the net taxable amount. This route can produce a larger overall deduction than the £312 allowance, but the rental income on the director's side may push the director into a higher tax band, and a formal exclusive-use rental can trigger the s.224(1) PPR restriction on the director's home. The rental option works best where the family home is not a primary residence (a holiday home, a flat held alongside the family base), where the s.224 consequence is irrelevant.

For the broader Ltd Co incorporation decision (where it makes sense to run a portfolio through a company at all), see our 2027 incorporation decision page. For the related corporate-side tax framework, see our broader landlord allowable expenses pillar.

What If I Work From the Kitchen Table or a Bedroom Corner?

Both methods accommodate the no-dedicated-office case. The simplified flat-rate is unaffected by where you work; the hours are what count. Actual-cost apportionment can be applied to a portion of a mixed-use room (the dining-table corner that operates as the office, accounting for 25 percent of the kitchen by use, or the desk-in-the-corner that occupies 10 percent of a bedroom by floor area). The apportionment is reasonable and supportable, and the room is not used exclusively for the business, so s.224(1) is not engaged.

This is the optimal operational pattern for most multi-property individual landlords: a working corner of a multi-use room, with actual-cost apportionment on a time-and-area basis, no exclusive-use characterisation, and PPR preserved.

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What Records Does HMRC Expect?

The evidential standard differs between the two routes.

For simplified flat-rate, HMRC wants a contemporaneous hours log: a spreadsheet, a diary, or calendar entries showing the dates, the hours, and the property-business activity. The log should plausibly support the band claimed (25-50, 51-100, or 101+ hours per month). Self-recorded estimates are accepted; the log does not have to be hour-by-hour evidence to the minute.

For actual-cost apportionment, HMRC wants the underlying cost evidence (bills, statements, mortgage interest certificates) plus the apportionment methodology (room measurements, floor area calculation, time-use rationale, photo evidence of room set-up). The methodology should sit on file with the workpapers, ready to produce on enquiry.

The eventual CGT disposal computation is the most exposed point. Where actual-cost apportionment was claimed on an exclusive-use basis, the disposal computation must reflect the s.224(1) restriction. Failure to do so is the most common path into an HMRC enquiry on home-office matters: the income-tax claim and the CGT computation are checked against each other.

Can I Switch Between the Two Methods Year by Year?

Yes. The choice is annual, not lifelong. A landlord starts in simplified flat-rate, switches to actual-cost in a year where home-business hours grow and the apportionment economics improve, and switches back in a year where the family moves house and a dedicated office space is no longer available. The choice does not need to be consistent year on year; only the records for each year need to support the chosen method.

The downstream CGT picture follows the characterisation of each year. Years of exclusive-business-use carry the s.224(1) restriction on the eventual disposal computation; years of mixed-use or simplified-flat-rate do not. The build-up is by year-of-use, not by lifelong election.

Interaction with Employment Home-Office Claims

Where the landlord is also a salaried employee who works from home, both regimes can apply but cannot double-count. Employment-side relief routes through ITEPA 2003 s.336 (with its own qualifying conditions and the post-2022 HMRC tightening of the homeworking-allowance route, where claims have been more rigorously scrutinised since the end of the COVID-era relaxations). Property-business-side relief routes through ITTOIA 2005 s.272 and the s.94H or s.34 routes covered above.

The allocation of hours and costs between the two activities must be reasonable and documented. A landlord who is also a software developer working from home cannot claim the same hour under both regimes. The allocation typically splits by genuine activity time, with the hours log showing the activity type for each period.

What About FHL and Short-Stay Accommodation?

The Furnished Holiday Let income-tax regime was abolished from 6 April 2025 (FA 2024 s.25 and Sch 4). Former FHL businesses are now treated as ordinary property businesses for income-tax purposes. The home-office deduction routes through the same ITTOIA 2005 s.272 framework, with s.94H and s.34 available. The functional result is similar to the pre-abolition position (where FHLs were treated as trades and the home-office deduction routed through Part 2 directly), but the statutory citation has changed.

For short-stay accommodation outside the former FHL regime (serviced accommodation, aparthotel operators), the position is fact-sensitive: most operators run as full trading businesses with Part 2 trading rules applying directly, in which case the trading-side home-office route at s.94H or s.34 applies on its own terms without going through the s.272 import gateway.

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