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Last updated: 31 Aug 2021

Working from home tax relief for US/UK taxpayers

As pandemic lockdowns have lifted and restrictions eased, working from home seems to be here to stay. Americans in the UK who are subject to both US and UK income tax should therefore consider what tax relief, if any, is available to them for unreimbursed home-office expenses.

If you’re an employee

US tax

For many years, if you were an employed US taxpayer who itemised their deductions, you could deduct certain expenses from your income that were associated with a home-office used regularly and exclusively for work, as well as the cost of many other forms of unreimbursed employment expenses. However, the Tax Cuts and Jobs Act, passed under President Donald Trump in 2017, suspended these deductions for 2018 through to 2025. This means if you’re an employed US taxpayer, you aren’t currently entitled to any tax relief for unreimbursed home-office expenses for US tax purposes.

UK tax

If you’re an employed taxpayer, you can take a deduction for certain home-office expenses from your income for UK tax purposes. When we look at this in practice, the allowable deduction is limited to the additional cost of gas, electricity and metered water consumed where a room is used as home-office, and for business calls and internet use.

Given that HMRC are notoriously strict in applying the rules and that it’s difficult to correctly calculate the deduction, using an alternative, simplified method of calculating the allowable deduction is usually preferable. With this method, as an employee you can deduct a flat £6 for each week worked at home. And if you claim this flat deduction you’re not required to keep any evidence of the additional expenses actually incurred.

It’s worth taking note that HMRC will only allow a deduction for an employee where they’re required to work at home by their employer e.g., due to COVID-19 restrictions.

Helpfully, HMRC will permit a whole year’s deduction for 2020/21 / 2021/22, £312, as long as the employee was required by their employer to work from home for at least one day in the tax year. The tax relief on such a deduction is worth £125 per year for higher-rate (40%) taxpayers.

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James Kirman

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If you’re an employee

US tax

UK tax

It’s worth taking note that HMRC will only allow a deduction for an employee where they’re required to work at home by their employer e.g., due to COVID-19 restrictions.

If you’re self-employed

The deduction available for home-office expenses incurred for self-employed taxpayers, including partners, is similar for both US and UK tax purposes. You could deduct a proportion of a wide range of expenses you foot the bill for when running a home-office, including things like property taxes, mortgage interest, rent, utilities, insurance, maintenance and repairs. Taxpayers who own their home can also claim a deduction for depreciation for US tax purposes.

The allowable deduction is generally based on the proportion of your home that’s used exclusively and regularly for business purposes. You should maintain records of all expenses claimed, plus clear and accurate calculations for the business proportion of those expenses, as the IRS or HMRC could request them as part of an enquiry.

Alternatively, the IRS and HMRC both offer other simplified methods of calculating the allowable deduction, greatly reducing the administrative burden. For example, the IRS allows a flat deduction of $5 per square foot for the part of the home used for business purposes, up to a maximum of $1,500 per year.

HMRC allows a deduction of a flat rate amount for utilities based on the average amount of hours spent working at home per month as follows:

25–50 - £10
51–100 - £18
101+ - £26

Claiming HMRC’s flat rate deduction for utilities doesn’t stop you from claiming a separate proportionate business use deduction for fixed costs such as council tax, mortgage interest, rent, and insurance.

It’s also important for self-employed taxpayers who are claiming a deduction for home-office expenses incurred while working at home, to consider other taxes besides income tax, including:

Business rates

These may be applicable for UK-based home businesses, such as those where the taxpayer’s home is used to sell goods or services to customers visiting the property, and could significantly increase the total cost of working at home.

Capital gains tax

Tax relief for capital gains tax purposes may be restricted for both US and UK tax purposes where part of a main residence owned by a taxpayer is used exclusively as a home-office, potentially creating a capital gains tax liability on the eventual disposal of the property.

Speak to an expert

For professional advice on what tax relief is available to you, or for more information on how to claim any tax relief available, please fill in the form below and one of our experts will be in touch to discuss how we can help.