Individuals who are considering selling their primary residence should be aware of the potential capital gains tax implications when selling their property with reference to a dedicated home office.
The potential risk for sellers relates to Principal Private Residence Relief (PPR) and the Taxation of Taxable Gains Act 1992. Section 224 states that private homes with dedicated areas “used exclusively for business or commercial purposes, or profession or vocation” may be denied PPR relief.
In recent months, a London homeowner has converted his garden shed to create a home office equipped to work from home, either temporarily or permanently.
The owner of the property ended up asking the tax office whether or not capital gains tax applied on the proportion of the property that is used for work purposes.
Under normal circumstances, the sale of an individual’s home benefits from the PPR allowance on capital gains, without taxation. As part of the PPR relief, there are restrictions on the relief which may mean that some or all of the gain will be taxable. Such a restriction applies when a part of the house is designated for business purposes only and, therefore, individuals will need to exercise caution when adapting their home.
It can be suggested that the problem could be avoided if there is a dual purpose for the room, such as a gym or family activities.
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