For the first few weeks of lockdown, millions of people were working with their laptops propped up on their kitchen tables. Once it became apparent that working from home would become the ‘new normal’, many chose to function out a designated space and upgrade to a home office.
If you have spent the pandemic creating the ultimate home office, you are probably feeling pretty satisfied and comfortable. That satisfaction however might dissipate somewhat when you try to sell your house, as you could possibly get a hefty tax bill. There is a chance that your new work space may be viewed by HM Revenue & Customs as a business premises, rather than a place of leisure.
Capital gains tax (CGT) is not levied on the sale of your main home, but it is applied to any part of your home used “exclusively for the purposes of a trade, business, profession or vocation”. Capital Gains Tax on property can range from 18% for basic rate taxpayers to 28% for higher rate taxpayers. There are also further variables that need to be considered as such whether the workspace office takes up 10 per cent of the total area of the house, and when the house is sold it generates a gain of £100,000.
In practice, the surging number of COVID-19 “offices” that have sprung up all over the country could land home workers with an unexpected tax bill. Many who wish to go on and sell their homes will be potentially listing their sheds and other spaces as a quiet, detached office, which is what buyers could be looking for in the COVID-19 climate. On the other hand, the tax inspector could deem the space in question to be solely an office for work related business, therefore you will to have to pay CGT on it.
The essential details to consider are:
- Whether the property was a gift or inherited
- Any valuations required
- Whether the property is jointly owned
- Your tax position
- Any improvements you have made
- Any tax-deductible expenses you have paid out
- Any exemptions you can claim
If you are not a CGT or property expert, it’s all too easy to get your calculations wrong. Pay too little and HMRC will claw it back, potentially with interest and penalties. Why risk getting it wrong? Ask our tax experts to do the hard work for you by contacting us today on 02085300720 or email firstname.lastname@example.org.