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Office Space in Attic for Company Use : Legitimacy/CGT / BIK / VAT Implications

  • 07-05-2008 1:00pm
    #1
    MuffinsDa
    Registered Users, Registered Users 2 Posts: 1,231 ✭✭✭


    Here's one for the gurus!

    I have a company which myself and my wife are the sole shareholders of.
    It is registered to our home address. It is trading (turn over of 90-110K p.a.). Most of the income is through my contracting work in IT but my wife being an artist we are planning to produce some recording/videos as well, and for that we need space to set up some basic equipment and use as a general office. Our house is currently too small for it (only 2 bedrooms) and we'll using part of kitchen and part of bedroom as office but that's becoming untenable.

    I have had received some quotes from proper building companies for converting our attic into an office space. The created space will be "non-habitable" space, i.e. can't be used as a bedroom or can't be added to total floor area of the house when selling it, only used as occasional office.

    The questions:

    1. Can I pay for it from the company? It is going to be used as a business office, so I presume it will be a legitimate business expense?

    2. I do understand that it renders part of my house as not being primary residence and potentially creates CGT liability. But will this liability be between the CURRENT VALUE of the house and the value when I sell it? i.e. if it's 200,000 now and 300,000 when I sell it, will I be liable for CGT on that? or will it be between original buying price of the house when I bought it and the final selling price. Also will the liability be proportional to the area of the office use vs permanent residence (i.e. all of 100,000 or 25% of it?)

    3. Will I be liable for B.I.K? I was under the impression that I wouldn't, but a girl in Wicklow revenue district told me I will. She didn't seem very sure though...

    Any advice on the above points would be greatly appreciated!


Comments

  • #2
    AccessQuery
    Closed Accounts Posts: 81 ✭✭AccessQuery


    MuffinsDa wrote: »
    Here's one for the gurus!

    The questions:

    1. Can I pay for it from the company? It is going to be used as a business office, so I presume it will be a legitimate business expense?

    2. I do understand that it renders part of my house as not being primary residence and potentially creates CGT liability. But will this liability be between the CURRENT VALUE of the house and the value when I sell it? i.e. if it's 200,000 now and 300,000 when I sell it, will I be liable for CGT on that? or will it be between original buying price of the house when I bought it and the final selling price. Also will the liability be proportional to the area of the office use vs permanent residence (i.e. all of 100,000 or 25% of it?)

    3. Will I be liable for B.I.K? I was under the impression that I wouldn't, but a girl in Wicklow revenue district told me I will. She didn't seem very sure though...
    Any advice on the above points would be greatly appreciated!

    You raise a number of issues that I'm sure quite a few people would like the answer for......

    Firstly, as you are trading services from your home you are infact liable for local authority rates, it'd be a percentage of the house used. Should you wish to tell the council!!!!

    On the CGT front, in theory, you will be liable for it, again on the percentage of the house used. I believe it'll from the time you started trading.

    On the BIK issue I believe that the revenue person is incorrect.

    If your business funds the conversion you will be on the revenue "radar" for any potential CGT. What you gain by funding the build through your business could well be lost should you sell the house in the future as family homes when sold, at the moment, are 100% tax free.

    Depending on your cash flow situation I would recommend you pay for the conversion yourself. The revenue will allow loans used to update a home to be included for mortgage interest relief. Then get the business to fund the fit out i.e desks, phone lines, broadband (assuming you can get it!!) PCs etc. Don't forget to claim mileage / mobile / broadband bills etc on your company or personal tax returns.

    Before you do anything else make sure you get some advice from a good accountant.

    Best of luck.


  • #3
    MuffinsDa
    Registered Users, Registered Users 2 Posts: 1,231 ✭✭✭MuffinsDa


    AccessQuery wrote: »
    You raise a number of issues that I'm sure quite a few people would like the answer for......

    Firstly, as you are trading services from your home you are infact liable for local authority rates, it'd be a percentage of the house used. Should you wish to tell the council!!!!

    On the CGT front, in theory, you will be liable for it, again on the percentage of the house used. I believe it'll from the time you started trading.

    On the BIK issue I believe that the revenue person is incorrect.

    If your business funds the conversion you will be on the revenue "radar" for any potential CGT. What you gain by funding the build through your business could well be lost should you sell the house in the future as family homes when sold, at the moment, are 100% tax free.

    Depending on your cash flow situation I would recommend you pay for the conversion yourself. The revenue will allow loans used to update a home to be included for mortgage interest relief. Then get the business to fund the fit out i.e desks, phone lines, broadband (assuming you can get it!!) PCs etc. Don't forget to claim mileage / mobile / broadband bills etc on your company or personal tax returns.

    Before you do anything else make sure you get some advice from a good accountant.

    Best of luck.

    Thanks very much for your comprehensive reply. Yep, I've seen these questions asked a few times but not answered.

    In relation to your suggestion, I understand what you mean by CGT. But let's do some calculation:


    Assuming:

    Cost of Coversion (excluding VAT): 17000

    If done with own money:
    Cost 17000 + 17000*13.5 (VAT) = 19300
    Money to be taken from company to cover that cost: 19300 + income tax at high band (40%) = 27000, paid to me as personal income

    If done through comapny:

    Cost: 17000 (no vat and income tax), saving of roughly 10000

    Assuming the current house price is 350,000, and accounting attic conversion for 25% of ant CGT, in order for this saving to be wiped by CGT the house price has to raise to around 550000

    ( 550000 - 350000) = 200,000 total gail
    25% of it : 50000 liable for CGT @ 20% = 10,000

    I don't think in the current market there's slightest chance of that happening in the next 10-15 years, by which time we would have sold the house and moved on hopefully.

    Do you think my calculations are realistic? Or do you see any flaws there?

    Again, any advice greatly appreciated.


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