Comparison · Tax Planning · 2026
WFH Allowance vs Renting Home to Your Company UK 2026: Which Is More Tax-Efficient?
Working from home gives you two main options for recouping costs: the GBP 6/week flat-rate allowance (GBP 312 per year) or, for limited company directors, charging the company a market rent for use of a home office. The rental route saves more tax but carries risks around Private Residence Relief, mortgage conditions and HMRC scrutiny that make it unsuitable for many.
TL;DR -- 30-Second Summary
- • WFH flat rate: GBP 6/week = GBP 312/year, simple, no risk
- • Renting to company: potentially GBP 500--GBP 1,500+/year saving, but needs licence agreement and commercial rent
- • CGT risk: exclusive business use of a room can reduce Private Residence Relief on sale
- • Mortgage risk: most residential mortgages prohibit commercial letting -- check first
- • For most directors: WFH allowance + equipment recharges is safer and sufficient
At a Glance: WFH Allowance vs Renting to Company
| Factor | WFH Flat Rate | Rent Home Office to Company |
|---|---|---|
| Annual saving (example) | GBP 312 (tax-free) | Potentially GBP 500--GBP 2,000+ |
| Documentation needed | None (flat rate) | Written licence agreement, market rent evidence |
| Self-assessment required | No (employer pays) | Yes -- rental income on self-assessment |
| CGT risk on property sale | None | Yes, if room used exclusively for business |
| Mortgage breach risk | None | Possible -- check your mortgage terms |
| HMRC scrutiny | Low | Higher -- especially for owner-directors |
| Available to employees | Yes | Mainly directors of own companies |
Worked Example: Director with Dedicated Home Office
A limited company director uses a dedicated room (10% of the home by floor space) as an office. The home has mortgage interest of GBP 8,000/year and other running costs of GBP 3,000/year. Market rent for a comparable room or co-working desk in the area is GBP 250/month (GBP 3,000/year).
| Item | WFH flat rate | Rent to company |
|---|---|---|
| Company pays | GBP 312 (WFH allowance) | GBP 3,000 rent |
| Corporation tax saved (25%) | GBP 78 | GBP 750 |
| Director receives | GBP 312 tax-free | GBP 3,000 rental income |
| Deductible expenses (10% of GBP 11,000) | -- | GBP 1,100 deductible |
| Taxable property income | GBP 0 | GBP 1,900 |
| Income tax on rental (40%) | GBP 0 | GBP 760 |
| Net household benefit | GBP 312 | GBP 3,000 - GBP 760 = GBP 2,240 (plus GBP 750 CT saving) |
In this example, the rental arrangement yields roughly GBP 2,990 in combined benefits versus GBP 312 for the WFH allowance. But the director must weigh this against the PPR risk, mortgage implications and administrative burden.
The Private Residence Relief Risk
The most serious concern with renting to your own company is the potential loss of Private Residence Relief. PRR normally exempts 100% of the gain on your only or main home from CGT. If a portion of the home is used exclusively for business (never for personal use), HMRC may apportion the gain and charge CGT on that proportion.
On a home that doubles in value (say from GBP 400,000 to GBP 800,000), the gain is GBP 400,000. If 10% was exclusively business use, GBP 40,000 of the gain becomes chargeable at 24% higher rate = GBP 9,600 CGT on sale. The cumulative annual saving from the rental arrangement must be weighed against this deferred cost. If the room is also used personally (a spare bedroom that doubles as an office), the risk is much lower.
Verdict
The WFH allowance is right for most employees and many directors -- simple, risk-free, and free to claim. Renting to your company is worth considering only if you have a dedicated, large office space, the annual saving is material, you have reviewed the CGT implications with a tax adviser, your mortgage permits it, and you are willing to maintain proper documentation. For the majority of home workers, GBP 312 plus equipment recharges is the pragmatic answer.