Garden office tax planning: new series

Here's one to bookmark if you are looking to find out more about the tax implications of a garden office. Helen Thornley, Technical Officer at The Association of Taxation Technicians, has just started a series on accountingWEB about just those issues (though you can also search Shedworking for plenty of other advice on these subjects). This first one is fairly general but we'll be keeping an eye out for the follow-up pieces on tax matters and other practical legal issues.

Photo courtesy Cabin Master

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Garden office tax planning: personal ownership

This great little series looking at tax and shedworking by Helen Thornley, Technical Officer at The Association of Taxation Technicians, continues on accountingWEB with Helen's looking at running costs, rental charges, expense recharge, and private residence relief (among other issues). Here's a snippet about capital gains tax:

Where the pod has any private use, that should avoid a restriction on private residence relief (PRR) for capital gains tax, when the individual comes to sell their home with or without the pod.

This CGT relief is denied on any part of a dwelling house which is used exclusively for the purposes of a trade or business (s224(1) TCGA 1992). Where there is such exclusive use, then the gain relating to that room or area needs to be apportioned out and tax charged. The same principle applies to any free-standing structure like a pod in the garden of the dwelling and the land on which it stands.

Provided that the new home office is not used exclusively for work purposes PRR should not be restricted. While the test of ‘exclusive’ business use is quite high, the HMRC manuals do suggest that occasional or minor private use is insufficient to avoid the PRR restriction and it expects to see regular residential use.

There is unlikely to be an issue where the pod doubles as a play room, or has a sofa and television in the office to watch TV with (or away from) the family, or contains gym or craft equipment – pods can be put to lots of other purposes outside working hours.

Image courtesy eDEN Garden Rooms

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Garden office tax planning: business ownership

In the third and final part of this excellent series by Helen Thornley, Technical Officer at The Association of Taxation Technicians on accountingWEB (see here for the previous two) she looks a a wide range of issues including structures and buildings allowance, VAT, and what happens when you come to sell your house. Here's a snippet, talking about 'benefit in kind':

One approach would be to view the pod as an asset which has been lent to the director and is available for their use, but to which legal title has not been transferred. If the pod does not fall within the special rules for living accommodation, then the general rules will apply. The HMRC view is that living accommodation is something that gives the occupant the necessary facilities to live domestic life independently without reliance on others to supply basic needs, so offices and workshops are excluded.

In this case, unless the pod is hired, the cash equivalent of the pod to be assessed each year as a benefit will be 20% of the market value of the asset when first made available – most likely the cost of the asset when new. This is likely to be more significant than the benefit in kind for living accommodation and, if the pod is to be kept long term, it might be better for the director who wants personal use to pay to install it privately. In the first tax year, this benefit can be apportioned so the individual is only taxed on the number of days since the pod was first made available.

As with previous blog posts, this is well worth reading.

Photo courtesy Warwick Buildings

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Wednesday’s posts are sponsored by Norwegian Log Buildings  - Log cabins and garden buildings for a better quality of life. Click here for more details.