Selling a property with a dedicated home office? Check the capital gains tax implications

Selling a property with a dedicated home office? Check the capital gains tax implications

Individuals planning to sell their main home should be aware of the potential capital gains tax implications, when selling their property with reference to a dedicated home office.

The potential risk to sellers surrounds Principal Private Residence Relief (PPR) and the 1992 Taxation of Chargeable Gains Act. 

Section 224 states that private homes with dedicated areas ‘used exclusively for the purpose of a trade or business, or of a profession or vocation’ may be denied PPR relief.

Don't be caught out!

In recent months, a property owner in London made adjustments to their garden shed to create a home office equipped for working from home, on a temporary or permanent basis.

The owner of the property ended up with an enquiry from the tax office, into whether or not capital gains tax applies on the proportion of the property that is used for work purposes.

capital gains tax dedicated home office

When is capital gains tax due?

Financial Consultancy RSM stated “Ordinarily, when an individual sells their main home, this benefits from relief from CGT and no tax is due to HMRC, even if the property has risen quite significantly in value.”

“However, this relief can be restricted and some of the increased value of an individual’s home can be taxable where a particular room in the house is designated solely for business use and is not used personally in any way. This should be considered in any future plans for a dream study.”

It can be suggested that the issue could be avoided if there is dual purpose for the room, such as a gym or family room.

Find out more

Further information on Principal Private Residence Relief can be found on the government website.

Alternatively, if you have any questions, please feel free to contact our team. 

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This guide is an informative piece and does not constitute tax advice for individual matters.