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Building house extension to use as home office - tax impli

Customer Question

Building house extension to use as home office - tax implications
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
At this stage none, you may utilise one room in your residence as an office. Have a look here for a comprehensive over view by TaxAid:
http://taxaid.org.uk/guides/information/a-starting-point-for-the-self-employed/self-employed/use-of-home-as-office
Please read the very important note regarding the avoidance of a partial capital gains assessment on ultimate sale viz:
'If you use a room in a home you own, ‘exclusively’ for work, this could reduce the Capital Gains Tax private residence exemption when the property is sold. This is because any part of the property exclusively used for business will not qualify for Capital Gains Tax private residence relief. This problem may be avoided by ensuring there is some domestic use of the study (e.g. keeping a second TV in the study, and using it from time to time for personal enjoyment)'
I do hope that I have been able to set your mind at rest on this matter.
Customer: replied 2 years ago.

We are ltd company at the moment (two directors/married couple living together). At present we rent offices for £800/month. We don;t have any employees. To save money we are building two storey/three rooms extension on the side of our house. We intend to use the ground floor as home office with computers/printers, second room downstairs as a gym (completely private use) and the new room upstairs as workshop, but as my wife is doing a sewing course also as her room to do all college work.

I also wonder if we can/should charge company for using the room or is it better if we don't gain in that way?

Expert:  bigduckontax replied 2 years ago.
Having built the extension you are only using one room as an office. I have shown you the way to ensure that it is not taken into account as a capital gain on sale if it is available and used for non office purposes from time to time.
If you charge rental on the room then you will be liable for Income Tax on the net rent received. There is also a great danger of, having let it, you create a tenancy and give the company exclusive use which is exactly what we are trying to avoid.
Customer: replied 2 years ago.

So basically it is best not to charge company anything and that way it should not raise any further questions… ?

Can I also ask for the situation with business rates? at the moment we pay reduced rate as we are small business. Should we inform them about using part of house? or just inform that we are no longer going to be using the rented office?

Many thanks

Expert:  bigduckontax replied 2 years ago.
Correct, do not charge.
I would merely advise the local authority that your use of the rented office has ceased.
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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3603
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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