Tax implications of garden offices

When the coronavirus pandemic started in 2020, people were advised to work from home. Kitchen tables, bedrooms, studies and many other places became an office. Now that working from home is here to stay for many employees and sole traders, some are considering building a garden office to allow them to focus on work.

Building a garden office can be quite costly. Many taxpayers, such as sole traders, are wondering if they can claim some tax relief on their self-assessment tax returns for these expenses. The simple answer is yes, but it isn’t as tax effective as you may think. What can you claim and what are the tax implications?

Capital allowances

Capital allowances can be claimed against your business profits and are usually assets you bought for business use, such as equipment, machinery, business vehicles etc.

However, garden offices do not count as plant and machinery and do not qualify for annual investment allowance (AIA).

Unfortunately, garden offices don’t qualify for structures and buildings allowance either because the property is intended for residential use.

However, you can claim the fixtures and fittings for garden offices, such as desks, chairs etc. You can also claim capital allowances on integral features, such as installing an electrical system, heating system, air conditioning etc.

When you ask the contractor for invoices, make sure they detail their work for tax purposes.

Allowable expenses

When you work in a garden office, any expenses wholly and exclusively for business can be deducted from the taxable profit for income tax. These business expenses include utility bills, repairs and maintenance etc. If the expenses are used for both business and personal use, a reasonable proportion of the expenses may be allowable.

Capital gains tax

Your main/only residential property is entitled to principal private residence relief (PPR relief), which means you have no capital gains tax (CGT) to pay when you sell the property (if you have occupied it as your main or only home throughout ownership).

However, this relief may be restricted if part of your home is used for business only.  If no part is ever claimed for business, then the whole property continues to qualify for PPR.

If the garden office can be uninstalled or moved to another location, there may not be a CGT issue if it doesn’t impact the capital value of the whole property when sold. But if it’s been built as a permanent fixture, the increased value as a result of the garden office could be exposed to CGT (only if a business claim for the structure has been made).

The capital gains may be covered by the capital gains annual exemption amount, but the annual exemption amount was reduced to £6,000 from 2023/24 and will be further reduced to £3,000 from 2024/25.

Other points to consider

Home insurance: A garden office may affect your home insurance; you may need to contact your broker before any work starts.

Business rates: For a residential property, you’re liable to pay council tax. However, for a business property, you may be liable to pay business rates if the structure/space has 100% business use. It’s advisable to contact the valuation office agency before the garden office is built.

Planning permission: You’ll need to contact the local council to see if you’re allowed to build the garden office.

For more advice about the tax implications of garden office expenses, please get in touch with your usual Larking Gowen contact. Call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Bridie Iachetta