Building a Garden Office for a Limited Company – A Tax guide

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Garden Office

As remote work becomes increasingly prevalent, many business owners are exploring the option of building a garden office for a limited company on their property. Besides providing a dedicated workspace, building a garden office for a limited company can offer significant tax advantages. In this comprehensive guide, we’ll delve into the tax implications of creating a garden office for your business and highlight key considerations to maximize your savings.

Tax Considerations for building a Garden Office for a Limited Company

Corporation Tax Implications

One of the primary benefits of building a garden office for your limited company is the ability to claim the cost of construction through your business. However, it’s crucial to note that the building cost would typically be classified as a capital expense, meaning it wouldn’t be available for immediate relief against your company’s taxable profits. Instead, it would be subject to capital allowances.

Capital Allowances

While structures and buildings are generally not eligible for capital allowances, the fixtures and fittings you purchase when building a garden office for a limited company would qualify for capital allowances. Some of these fixtures and fittings may even be eligible for the Annual Investment Allowance (AIA), allowing you to claim 100% of their value in the year of purchase. Leveraging capital allowances can help offset the initial investment in the garden office and reduce your company’s tax liability.

VAT Considerations

If your limited company is VAT registered and the garden office is used solely for business purposes, you should be able to reclaim the VAT charged on the building expenses and furnishings. This can result in significant savings, particularly for larger construction projects.

However, if the garden office is used partly for business and partly for personal use, you may only be able to claim a portion of the VAT incurred. The portion you can claim would be portioned based on the time it is used for business vs the overall use of the building.

Capital Gains Tax implications

Building a garden office for a limited company on your property can have implications for capital gains tax (CGT) when you eventually sell the property. If you have lived in the property as your main residence for the entire ownership period, you would typically be eligible for private residential relief (PRR), exempting the sale from CGT.

However, since part of the property is now being used for business purposes through your limited company, it may not qualify for full PRR. As a result, you may be liable for CGT on a portion of the property’s gain upon sale. This does depend on whether the office can be removed easily or is a permanent fixture in the property.

Other Considerations

Apart from tax implications, there are several other considerations to keep in mind when building a garden office for a limited company:

Home Insurance: It’s essential to review your home insurance policy to ensure that it covers structures like garden offices. Depending on your insurer, you may need to update your policy to include coverage for the new addition.

Mortgage Impact: Building a garden office on your property could impact your mortgage arrangements. It’s crucial to inform your lender of any changes to the property, as failing to do so could breach your mortgage agreement. Your lender may need to reassess your mortgage terms based on the updated property value and usage.

Is a Garden office worth it for me?

This depends on your situation, as the capital gain taxes due may outweigh the VAT and corporation tax savings initially received. The results also depend on whether you are building an office solely for business use or for a portion of personal use, as this will restrict the tax savings you are eligible for. Therefore, we suggest getting in touch to find out your best options.