Home office workspaces and Capital Gains Tax

Posted Friday, April 9, 2021


People working from home have had to get creative with workspace solutions, and you may have decided that your new office would be better placed in a garage, shed or summerhouse than at the kitchen table where, in the battle for space, you’re competing with children and food prep.

According to recent studies, there’s been an upsurge of 73% in office furniture sales for the home, and that 1 in 10 people now work from their garage or garden premises. No surprise really, given the year we’ve just had, with WFH becoming the norm, and also with many people trialling expanding their beloved hobby into a business venture – from the comfort of their home.

But did you know you could be liable to a hefty tax bill when you come to sell your property?

Recently HMRC has been viewing ‘office sheds and similar modified parts of homes' as being outside the principal dwelling Capital Gains Tax (CGT) relief, so if you sell your house on the basis it has its own mini-office in the garden, or a converted garage, for example, they will deem this as a ‘business premises’ and insist that capital gains tax is paid in relation to that space. This is landing many a homeowner who has created a peaceful workday away from family noise with a very unexpected tax bill when selling their home.

With so many homeowners investing in creating a home workspace, what exactly are the criteria for a shed being deemed as business premises? It all boils down to the exclusive use of that part of your home (and this also applies to other rooms in the house being utilised as an office). You may just have to prove that space was also used by the children to play board games! The CGT bill is based on the % that your business space took up in relation to your whole property. So, if that is say 8% of the entire footage of your house, then when you move, you’ll be billed 8% of the profit you make on the sale. Add that to the average cost of a garage conversion (£10,000) and it all becomes a bit painful. However, 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.

So, the best way to ‘work’ around this sticky issue is to ensure that your home (or garden) workspace is multi-purpose. Yes, it may be that you have a desk, phone line and all the kit needed for you to do your job, but best not to have a ‘no children allowed’ sign on the door, or to advertise your property as having a ‘purpose-built home office’! If you are unsure about how you stand, we recommend speaking to your accountant or tax adviser.

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