But is it just a garden shed?
Due to recent events, many of us are now working from home on a full or part time basis, and current predictions are that it will form part of our lives for the foreseeable future. Regardless of whether you were previously working from home, or are new to it, it is important to take time to consider all the tax implications.
One often overlooked area is whether having an office at home has an impact on the amount of private residence relief that you can claim for Capital Gains Tax purposes when you sell your home.
Setting up an office at home may be as simple as rearranging a room in your house or may involve utilising an existing structure in your garden, such as your garden shed. What was once a basic structure used just for gardening purposes has in some cases been transformed into a proper office with heating and electricity. Many have gone far beyond this and structures being built in gardens these days can be far more sophisticated and may require planning permission.
Any capital gain arising on the sale of a property that has been your main residence throughout your period of ownership is exempt from a Capital Gains Tax charge, however if any part of the property has been used exclusively for another purpose, part of the gain may be chargeable.
When calculating the gain that is chargeable, it will be necessary to carry out a proportioning exercise of any capital gain arising on the disposal of your whole home and associated buildings. This may be based on area, but there may also be an element of time apportioning if the part used exclusively as an office has not always been used as such throughout the entire period of ownership.
The exposure to a Capital Gains Tax charge can be avoided by using the office for private use as well. This could for example include using it in the evenings for a hobby.
If a chargeable gain cannot be avoided, it may be that the capital gain apportioned to the office is relatively small and may be covered by the annual capital gains exemption, which is currently £12,300.
You cannot claim tax relief on the cost of building a permanent structure for Income Tax purposes (although some components of the structure may attract some relief). This applies to an individual funding the cost themselves, and also applies if it is funded by your self employed business.
If you run a company and it constructs the building used as an office, the situation becomes complicated with various taxes to consider and it is likely to be costly from a tax perspective.
There are a multitude of other tax considerations, such as those relating to ongoing running costs of working at home and contributions by an employer which are far too detailed to mention here.
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