Capital gains tax implications for properties with a dedicated home office

Individuals planning to sell their main home should be aware of the potential capital gains tax implications, when selling their property with reference to a dedicated home office.

The potential risk to sellers surrounds Principal 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 PPR relief.

In recent months, a property owner in London made adjustments to their garden shed to create a home office equipped for working from home, on a temporary or permanent basis.

The owner of the property ended up with an enquiry from the tax office, into whether or not capital gains tax applies on the proportion of the property that is used for work purposes.

Under normal situations, the sale of an individual's home benefits from PPR capital gains tax relief, resulting in no tax liability. Under PPR relief there are restrictions to the relief which can mean that some, if not all, of the gain will be taxable. One such restriction applies where any part of the house is designated solely for business purposes and therefore, individuals will need to tread carefully when making adaptations to their home.

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

If you would like more information, contact us on 01704 891676 or email [email protected]