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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4995
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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if i built studio at the back of my house can i capitalise

Resolved Question:

if i built studio at the back of my house can i capitalise cost of studio worth £15K. if so what happens when i sell my house or get re possed or if i close down the business. how do i capitalise the cost in the business. what should be my accouting entry. is any capital allowance available on the cost?

Thanks
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.
Hello and welcome to the site. Thank you for your question.

There are CGT implications if you use part of your private property as business. Any gain realised from sale of property pertaining to that element used solely as business would be subject to CGT.

More information on this can be found here

http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#3


If you cease to trade and start using the studio as an integral part of the main property the it would be regarded as private residence and you would be able to claim private residence relief against the gain.

You will find this articles "What expenditure qualifies for plant & machinery allowance" and Capital allowances relating to buildings and renovation” helpful .. look here

http://www.rossmartin.co.uk/index.php/capital-allowances/293-what-qualifies-as-plant-a-machinery

http://www.hmrc.gov.uk/capital-allowances/buildings.htm

Your accounting entries for the cost of studio should be
DR. Tangible assets (with the cost of studio broken down into)
- Fixtures and fittings
- Land and buildings

CR:
- Capital introduced (if sole trader)
- Director's loan account (if trading as LTD company)

I hope this is helpful and answers your question.


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Customer: replied 3 years ago.

you have not answered what happens when business folds. do I get studio back ?

Expert:  taxadvisor.uk replied 3 years ago.
I did answer it -

If you cease to trade and start using the studio as an integral part of the main property the it would be regarded as private residence and you would be able to claim private residence relief against the gain.

If your business folds and you are indebted to people then you are personally liable to the debt.. the studio at the back would be part of your property.

If you close business and there are you debts then the studio becomes your personal asset.

I hope this is helpful.