Boom in garden offices can bring tax holidays and headaches

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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The boom in garden offices can create tax holidays and headaches when homeowners choose to sell, says our expert Natasha Heron.

The Covid pandemic has seen a boom in garden offices as office staff and business owners quickly made the transition from a daily commute to working from home. And with a combination of both home and office working likely to be adopted on a more permanent basis, the garden office will look even more attractive.

The garden office can also come with an unexpected Stamp Duty Land Tax holiday or a Capital Gains headache when a homeowner decides to sell, which estate agents often overlook.

Our expert Natasha Heron, Tax Manager specialising in property taxes explains.

“Sellers, buyers and their estate agents often fail to realise that a garden office if it meets certain criteria can lead to quite substantial savings for stamp duty land tax under what is called multiple dwellings relief.

Multiple dwellings relief will usually see stamp duty land tax charged not on the total sale price of a home but on the sale price divided by the number of properties acquired regardless of their size or value, and that can represent a significant saving.

“The relief does, however, come with strict qualifying criteria, with a garden office needing to be independent from the main house and with its own cooking facilities and bathroom. Independent does not necessarily mean detached, but attached garden offices, or granny annexes, will need a separate entrance.

“Savvy sellers can use this relief to increase the sale value of their home, sharing the reduced stamp duty land tax liability with buyer.”

But warns Natasha, business owners that have funded a garden office through their business could face an unexpected capital gains tax bill.

“Garden offices can add significant value to a property and consideration is required if that space is classed as a business asset. Capital Gains Tax (CGT) does not usually apply to your primary residence when you sell it. However, it may apply if part of your residence is used solely for business. Business owners will need to keep a watchful eye particularly is a sale is on the cards any time soon.”

SDLT can be a complex area. Everyone’s situation is different and getting advice that is tailored to your unique situation can ensure that your affairs are as tax efficient as possible. We offer a free initial consultation, so if you would like to speak to Natasha Heron, please get in touch with her direct or call 0330 024 3200 or email hi@hhllp.co.uk.

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Natasha Heron

Natasha is a member of the ICAEW as a qualified auditor and the Chartered Institute of Taxation, specialising in indirect taxes. Natasha has developed a specialism as an adviser on the Stamp Duty Land Tax implications of property transactions.

Contact Natasha at Natasha.Heron@hhllp.co.uk or on 01923 634460