Tax implications of building a Log Cabin home office

Tax implications of building a Log Cabin home...

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Director of small company works from home & wants to purchase a log cabin that he can use for a home office at the back of his garden. Should he consider company purchase or purchasing personally - is there any advantages either way? Would probably use 100% for business, but could include small % of private use if business rates would become an issue (based in Scotland).
CGT shouldn't be an issue as he expects the log cabin will only last 10-15 years & approx cost £5k (& intends to move the cabin in the unlikely event he decided to move house).
Can anyone point me in the right direction, not sure if I have considered all the implications.
Thanks,
Brian.

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By User deleted
14th Apr 2010 11:14

I favour the personal treatment...

Through the company he's relying on capital allowances (mostly none, except the 10% WDA on integral features) and possible future relief for a capital loss.  As a personal asset, he's able to extract profit from the company by way of rent, taxable on him, but relievable by the company.

If he's paying at 50% personally though, he might prefer to leave the profits in the company and take a more modest tax break there.

The personal option also makes it easier to have a personal element to avoid the non-domestic rates issue, but that's probably not that big an issue in any event.

Phone, broadband and utilities could all be in the company name, and the company could own the fixtures, fittings and equipment and take the capital allowances on those.

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By nick farrow
14th Apr 2010 12:16

I prefer the company to buy

I prefer the company to buy it as although there is unlikely to be any capital allowance, there is tax relief on the interest cost (assuming finance used) and it avoids a 25% or 36.11% charge on the funds otherwise extracted to pay for it - I hope my logic is sound here

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Nichola Ross Martin
By Nichola Ross Martin
14th Apr 2010 14:50

£5k is a bit low

Depending on the size of the building, £5k seems low if he is going to insulate, board out etc probably looking at more like £10k once services are installed.

Check that it will be insurable and it is worth considering planning issues (met someone the other day who had to remove his home office - he now operates from a caravan instead!).

VAT might be an issue and buying or constructing it via the company might be better bet as it will be standard rated. The company can pay him for rent of the land, and he can buy the asset from the company the end of the term at then market value. Does he have a partner? Might be some scope for income splitting of rent too. You are going to have to consider what goes into whatever licence you draw up quite carefully depending on who owns what. You probably want to avoid a lease and the mortgage company may not allow subletting.

Virtual tax support for accountants: www.rossmartin.co.uk

 

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By nick farrow
14th Apr 2010 18:46

vat

I forgot to mention the VAT which I think was critical in the decision

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