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Garden Office - benefit in kind unavoidable?

as on director's land?

Didn't find your answer?

Ltd co client wants his company to buy/build a garden office.

I'm OK with corporation tax/VAT, but bit concerned about BIK.

I assumed that if there was no 'personal use' (don't know how difficult to convince HMRC of this) then no BIK.

But been told (by our tax advisers) that because it would be built on land belonging to the director personally, then BIK unavoidable/to do with office being available to use personally.

Looked at various artcles from other accountants on this, and there's no mention of this.

Anyone help please?

 

Replies (16)

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By ireallyshouldknowthisbut
14th Sep 2021 13:14

If the business pays a fair market rent for the land then I would suggest no BIK arises.

Also happens to be a tax efficient arrangement in most cases due to the marginal rates on tax of rents vs dividends.

its normally a "why wouldn't you?". Any potential CGT issues ought to be trivial if the building is owned by the company but I guess could arise in some circumstances depending on the plot size, layout etc.

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By David Ex
14th Sep 2021 13:12

If you want some more views, type “Garden Office - benefit in kind” into Google and you’ll get lots.

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Replying to David Ex:
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By 1796971
14th Sep 2021 13:55

thanks - can't see any mention of 'land owned by director' in these articles. They all say if personal use, then BIK - if no personal use, no BIK

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Replying to 1796971:
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By David Ex
14th Sep 2021 14:02

1796971 wrote:

thanks - can't see any mention of 'land owned by director' in these articles. They all say if personal use, then BIK - if no personal use, no BIK

If it’s not explicitly stated, maybe it’s assumed that the director/ shareholder wouldn’t be building their garden office in someone else’s garden.

Anyway, you have some alternative views to discuss with your tax adviser.

Thanks (4)
Replying to David Ex:
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By More unearned luck
14th Sep 2021 17:23

I have done what you have said. The top five answers all jump in with advice without any legal analysis of what the client has done/intends to do. They all assume that the garden office is or will be a chattel belonging to the company. This is despite, in one case, the advice beginning “[m]ost of the costs when adding a garden office tend to be structural, like building work, foundations, etc.” and goes on to mention electrical, heating and water systems.

If someone (including a limited company) constructs a building on someone else’s land, then they will have nothing to show for the money spent. This is because the building is now part of the land owned by the other person. The saving grace for the shareholder of a company in this position is that he or she is the benefiting landowner.

If we have a building, then:
• the BIK is the cost of purchase and fitting
• The company doesn’t have an asset so CAs don’t need to be considered
• the VAT thereon is no more reclaimable than if the company had had added a conservatory to the director’s house
• there is no ongoing BIK
• the director could charge the company a rent (tax-free if set to equal the business use of the actual running costs)
• provided that there is some private use, no CGT problem on sale of house.
• if no private use, then it would be better if the cost had been debited to DLA rather than the P&L.

It is a legal question whether a garden structure is a chattel or part of the land. Is it a posh garden shed or a pre-fab building? But the thing doesn’t even have to be fixed to the land to become part of it - think of dry-stone walls. Intention is an important criterion in assessing if something is part of the land or a chattel. I think that anything with electricity and plumbing is there for the long haul.

The business/private use question is different for BIK and PRR. In the one case it is merely the potential of private use that gives rise to a BIK and in the second it is actual, non-trivial, private use that preserves PRR.

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Lone Wolf
By Lone_Wolf
14th Sep 2021 14:07

I'd say there is a way around it.

If there's an agreement for the land the office is put on to be reinstated to it's original condition, then there has been no appreciation in the value of the personal land.

If it comes to a point that the company ceases or no longer requires the office, and it is not reinstated, then a BIK may arise on the MV of the office at that point.

As for "made available for private use", well what exactly does that mean? Is it made available simply because it is there?

If you stayed across the road from your employers office, and had a key meaning you could access it whenever for whatever, is it then available for private use? Nah.

If there is going to be no actual private use, then I'd say the director should have a frank conversation with himself over how the garden office is not available for private use under any circumstances. A meeting note to document said conversation as back up.

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Replying to Lone_Wolf:
paddle steamer
By DJKL
14th Sep 2021 16:06

Interestingly the MV at the end of the ground rent will likely be pretty low if one at such a point took what it would sell for less its removal cost and the likely remedial works re garden once damage from heavy moving equipment rectified post move.

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By SteveHa
14th Sep 2021 16:05

I think your advisor was adopting a belt and braces approach. Whilst it is technically possible that the office has no private use, actually convincing HMRC of this is notoriously difficult. Not impossible, but difficult.

There are other considerations, though, too.

Possible restriction of private residence relief on eventual sale of the home
Possible exposure to business rates
Employee liability insurance
Public liability insurance

It's not all just about the tax.

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By David Ex
14th Sep 2021 18:18

More unearned luck wrote:

I have done what you have said. The top five answers all jump in with advice without any legal analysis of what the client has done/intends to do.

Bit like the original question which started "Ltd co client wants his company to buy/build a garden office".

I didn't intend to suggest that the search results were correct or complete in the advice/analysis they gave but they could give the OP a better idea of what the potential issues are and how, if possible, they might be addressed.

I was confused as to who is doing what because the question refers to (presumably) the OP's "Ltd co client" but then refers to "our tax advisers".

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Replying to David Ex:
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By 1796971
14th Sep 2021 18:35

thanks - I'm the accountant, and 'our tax advisers' are the company we use for tricky stuff.

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By Hugo Fair
14th Sep 2021 19:32

What happens when your client (the Ltd co) continues to trade AFTER the individual (presumably director/shareholder) sells her/his property?
Does that sale exclude the Garden Office (which presumably is only accessible via land not owned by the Ltd Co)? If not, what transaction (and with what tax treatment) is envisaged to enable that sale to proceed without encumbrance?
And as others have mentioned ... insurance, rates, services, repairs/maintenance, etc in the meantime?

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By Ian Bee
15th Sep 2021 11:12

I had this question a year or so ago and as more people are taking to WFH maybe it will become more popular.

My advice then was that in order to build an office and claim any capital allowances, the company would need some sort of interest in the land either a lease or a licence to occupy at which point the client should consult a solicitor.

Alternatively the landowner should build the office and claim the allowances against the rent he would necessarily charge, with a consequent need for a tax return every year.

At this point you can see costs starting to rise which may be worth it, depending on the figures involved.

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Replying to Ian Bee:
A Putey FACA
By Arthur Putey
15th Sep 2021 12:34

Capital allowances on a "building"? You probably mean on any elements of the office that are plant or f&f.

This also raises the question of whethet said garden office functions as "business premises", as opposed to a home office provided by the company which has its business premises elsewhere. If the latter, and assuming no employees or client visits then PL/EL insurance is not needed.

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By The Dullard
15th Sep 2021 12:33

See the Foxcote Court issue in Denny:
https://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02714.html

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
17th Sep 2021 15:20

If you haven't seen it before, Helen Thornley did a three-part article series on the tax treatment of the garden office:
https://www.accountingweb.co.uk/content/the-tax-treatment-of-the-garden-...

Benefits in kind and business ownership are covered in part 3, in which she says the cash equivalent usually assessed by HMRC as a benefit each year will be 20% of the market value of the asset when first made available.

While she doesn't cover your specific question about avoiding BIKs, her concluding advice in that section is: "If the pod is to be kept long term, it might be better for the director who wants personal use to pay to install it privately. "
https://www.accountingweb.co.uk/tax/personal-tax/the-garden-office-part-...

I'll alert her to your question and see if she can offer any further insights.

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By 1796971
20th Sep 2021 10:15

Thanks for that.

Spoke to the client end of last week, and came to the conclusion that simpler/cheaper tax/NI-wise to draw as a dividend and just pay for it personally!

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