Tax Relief for Shed or Garage Conversion

SHED CONVERSION

One of the benefits of having a garden in the country is that it comes with a shed. This might not mean a lot to my adoring women readers (I’m sure there are lots!) but the macho men amongst you are probably nodding your heads in agreement. A shed is a place that men can store their power tools, mountain bikes golf clubs etc. A true shrine to testosterone pursuits.

Tax Relief converting a shed

I have always wanted a shed so that I could have a place to put the stuff that Mrs TTF has banned from the house or has asked me to throw away. There is a secret area of my man cave where I have accumulated useful (or useless according to DB) items. Old number plates, slightly out of date paint and ten year old gadgets have been carefully placed in this corner. I’m sure all of these items will come in useful one day……

Recently however my little corner of heaven has been invaded by children’s toys and our ferrel pets. The feline squatters are from a home for unwanted cats. Mrs TTF felt sorry for them as no one wanted them. I have since found out why they were the longest residents in the home…..they don’t like humans and enjoy living outside! The furry faced couple run away whenever I go near them. They therefore have a cat flap (finally used my power tools for something other than hanging a picture) and come and go as they please.

This means that in the current cold weather I have had to take hot water bottles up to the shed each night. The neighbours must think that I’ve been kicked out as I walk up the garden path in my PJs, with a blanket and the hot water bottle!

Mrs TTF has now announced that she is thinking of converting the shed to an office as she works from home. This caught my attention as if it is wired for electricity and insulated I will be able to install my PS3 and wide screen TV! So what tax reason can I use to get my way…..

THE TAX BIT

In order to deduct the expenses for converting the shed or garage to an office from trading profits they will either need to be a revenue cost or qualify for capital allowances. It is likely that the shed conversion costs will be of a capital nature and therefore not automatically deductible from her taxable profits.

We would therefore need to review whether the costs qualify for capital allowances.

Capital Allowances

Capital allowances are available if a trader incur costs that relate to either plant and machinery or integral features. It is therefore likely that some of the conversion costs would meet the latter.

Features integral to buildings

Plant and machinery allowances can be claimed for expenditure on assets in a building that is in use for the purposes of your business. It therefore follows that any conversion expenditure that fits this cryteria will qualify.

You can claim plant and machinery allowances for the following integral features:

electrical systems, including lighting systems
cold water systems
space or water heating systems, powered systems of ventilation, air cooling or air purification, and any floor or ceiling comprised in such systems
lifts, escalators, and moving walkways
external solar shading

If applicable these items qualify as integral features for capital allowances purposes and a 10% writing down allowances will be avaible i.e. you can claim 10% of the costs incurred per annum on a reducing basis. This is increased to 100% for the first £250,000 of expenditure under the Annual Investment Allowance (AIA) rules. If you therefore spend below £250,000 (no gold platted taps or light fittings for Mrs TTF!) she will be able to claim a full deduction.

We would therefore need to identify the element of the conversion costs (including labour) that relates to the above list.

Principle Private Residence Relief

If we were to claim full allowances then it is likely that the capital gains tax relief on our home will be restricted for the new office.

You may need to ensure that planning regulations are not breached but this is beyond the scope of this article.

To avoid this issue we would need to use the office partly for private use and restrict the allowance accordingly eg if you use the office 90% for business use then you can only claim 90% of the capital allowance.

This is where my cunning plans comes in. If Mrs TTF wants to convert the shed then she will have to let me use my PS3 more often or we could be creating an exposure to CGT. Mwhahahhahaha….

By Peter Cross

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Comments
One Response to “Tax Relief for Shed or Garage Conversion”
  1. Peter Cross says:

    Hi Sue. Unfortunately I can only comment on UK taxation. I think you are in the US so I do not know the answer. If you find out can you let me know?

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