ATT Technical Officer The Association of Taxation Technicians
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The garden office part 2: Personal ownership

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The tax treatment of the garden office pod depends on whether it is used wholly or partially for business, and if it is owned by the individual or the business. This time we examine personal ownership of the pod.

11th Dec 2020
ATT Technical Officer The Association of Taxation Technicians
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Where the pod is going to have a mix of business and personal use, perhaps in order to keep within permitted development rules, consideration should be given to incurring the installation costs personally. Personal ownership can help to keep things simple in the longer term, although comes at a price in the short term.

The immediate downside is that the individual will need to find the funds for the installation, which may mean borrowing personally or extracting additional funds from their business. For an incorporated business, this could mean an extra tax cost on additional dividends or salary. It also means forgoing any potential tax reliefs on the installation of the unit which the individual’s business may otherwise have been able to claim (which I’ll look at in part 3 of this series). 

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Replies (5)

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By Donald MacKenzie
14th Dec 2020 09:52

I work from a home office and have built a small wooden building in the garden to use as a meeting room during the Covid situation so that visitors do not need to come into the house or meet at a garden table.
The article was useful in reminding me of the tax issues. Outdoor meetings stopped being a pleasure in Inverness some time ago!

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By James Bolger
15th Dec 2020 08:12

Good article. However if the company pays for the pod how do you deal with the personal use of a company asset to avoid CGT issues?

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Replying to James Bolger:
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By Jamesm2705
15th Dec 2020 17:02

BIK. EIM21885/A

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By cfield
20th Dec 2020 17:58

Excellent article Helen. Neatly sums up each possible approach. The rent route is usually the most tax efficient. The mortgage interest could be seen as debatable if the pod was funded from savings, but as I see it, our old friend BIM45700 (with the famous Rotterdam example) comes to the rescue here. You just need to pro-rata the mortgage by your capital account; i.e. the market value of the pod when it was introduced to the letting business.

You touched on the spouse issue. Of course, all income from property owned jointly by married couples must be split 50/50 unless a Declaration of Trust has been signed and sent to HMRC with Form 17 within 60 days. Probably not something you'd want to do with the family home. That means the spouse having to file a tax return for their share of the rental profits, assuming their personal allowance has been used up and they have tax to pay on it.

One could get round this by having the owner-director charging the spouse a fee for managing the office, a fee that miraculously equals their share of the profit. That effectively transfers the whole profit to the spouse it really belongs to, who would then put it on their tax return as miscellaneous income. You could even do it as an accrual and raise the invoice after the end of the tax year.

That might be seen as somewhat aggressive by HMRC if the other spouse pays tax at a higher rate, so important to enter all this in the Additional Information box. In fact, best to enter the % claimed for all household bills in that box, so hopefully the 12 month enquiry window will preclude any challenge.

One other thing. Personally I see no reason why the owner-director can't claim the £6 per week home working allowance as well as the rent. After all, this is an employment allowance, nothing to do with being a landlord. The company may rent an office in his home, but it is still asking him to work at home. It could always find someone else to work there instead.

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Replying to cfield:
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By BJNATHAN
14th Apr 2021 09:05

I was once told that a spouse could choose to rent their half 50% of a property to the company and the other spouse could choose not to rent their half, waving that income.

This saves the hassle of having to prepare two tax returns for the shared rental income. Have you ever heard of an arrangement like this operating?

Assuming both spouses pay tax at the same rates in practice would HMRC challenged or accept this type of arrangement?

Interesting what you say about the £6pw and the rent for home working. It would feel a little disingenuous to claim the actual costs and the allowance for the same costs/workspace. I know HMRC have some guidance when you have associated employments to say you should not claim for the home working expenses if they are linked.

Assuming that one spouse rents their half of the home to the company, if the other spouse is employed at the company but not renting their half could a home working allowance of £6pw be justified?

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