Capital gains tax implications for properties with a dedicated home office

An Estate Agent from London has voiced their concerns over an issue which is described as ‘an urgent alert’ surrounding the risk of capital gains tax being levied on some properties with a dedicated home office.

 

The agent was recently involved in the sale of a property which included reference to a dedicated home office. The owner of the property had modified a garden shed to become a fully equipped home office space for anyone wanting to work from home on a temporary or permanent basis.

Working from home, as we know it, has been rare in the past and therefore the details surrounding home working spaces has been very explicit. However, this case ended up with tax office enquiries to the seller on whether capital gains tax should be applied on that proportion of the property used for work purposes, rather than residential.

The potential risk to sellers surrounds Private Residence Relief (PPR) and the 1992 Taxation of Chargeable Gains Act. Section 224 states that private homes with dedicated areas ‘used exclusively for the purpose of a trade or business, or of a profession or vocation’ may be denied Private Residence Relief.

Financial Consultancy RSM stated “Ordinarily, when an individual sells their main home, this benefits from relief from CGT and no tax is due to HMRC, even if the property has risen quite significantly in value. However, this relief can be restricted and some of the increased value of an individual’s home can be taxable where a particular room in the house is designated solely for business use and is not used personally in any way. This should be considered in any future plans for a dream study.”

It can be suggested that the issue could be avoided if there is dual purpose for the room, such as gym equipment or family activities.

Further information on Private Residence Relief can be found on the government website.

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Emily Dodds

Emily Dodds

Marketing and Business Development Officer

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