Many of us are currently working from home and being given the option to do so on a permanent basis. The idea of converting your spare room into a dream office to be used solely for work seems very attractive.
However, you should be aware this could cause you to have to pay Capital Gains Tax (“CGT”) when you sell your main home!
The reason for this, the Private Residence Relief (“PRR”) rules. In short if the room/space you are using is solely for work/business use, this has to be taken into consideration. How much capital gains tax will depend on the amount of space used as a percentage of your total area of your home, here’s a quick example:
Home Office = 10% of your homes total space.
Your Home’s Sold Price = £200,000
Potential Capital Gain = £20,000 (10%) less your annual CGT allowance, with the remainder being taxed at 18% or 20% respectively.
A tax not normally payable on your main residence can now take a slice of your home’s value and leave you a little poorer.
There are many little rules like this littered throughout tax legislation, make sure you always take appropriate tax planning advice before selling and creating the tax.
You can learn more about CGT by clicking here, read more about CGT and download our CGT guide. Or you may feel you need to talk to someone now about your personal tax position, click here to book a FREE initial telephone consultation with one of our senior tax advisors.