Tax, allowable expenses and a business Premises !!!!

*In*need*of*advice*

Hello :-)


After a little bit of guidance.


I am a sole trader and currently work from home. I am toying with the idea of buying a commercial premises to work from to separate my home and work life.


The purchase would be made from personal savings.


As I understand it (and correct me if I am wrong) if I declare the premises a 'business asset' any maintenance and repairs or necessary work to make it suitable for my business use is an allowable expense. If I have it as a personal asset then these things are not an allowable expense.


If it is a business asset when I sell it in some 5-10 years time all the proceeds of the sale are subject to income tax. If it is a personal asset then CGT is payable on the net profit (sale price less purchase price and allowable expenses).


Is this correct and is there anything else I should be aware of?

purdyoaten

Unfortunately almost every aspect of your post is incorrect. The cost of professional advice in comparison to the value of your purchase is negligible but could ultimately save you a fortune. For example- as a sole trader you will be liable for CGT on the business premises whether you regard them as a personal or business asset although there are additional reliefs for the latter.

Only expenses which are not of a capital nature will constitute an allowable expense against profits.

*In*need*of*advice*

purdyoaten wrote: »

Unfortunately almost every aspect of your post is incorrect. The cost of professional advice in comparison to the value of your purchase is negligible but could ultimately save you a fortune. For example- as a sole trader you will be liable for CGT on the business premises whether you regard them as a personal or business asset although there are additional reliefs for the latter.

Only expenses which are not of a capital nature will constitute an allowable expense against profits.

Aaahh so I haven't got to grips with this then :-( So the premises will always be liable for CGT and not income tax. Is maintenance to the premises an allowable business expense? I was under the impression that if it wasn't 'declared' as a business asset then maintenance and repairs were NOT an allowable expense? It is just the premises may need a bit of remodelling to be suitable for my needs so there will be costs including planning permission, architects drawings, and then obviously the building work itself. If this is not allowable as a business expense presumably it can be used to reduce the profit when the building is disposed of - thus reducing the CGT?

purdyoaten

*In*need*of*advice* wrote: »

Aaahh so I haven't got to grips with this then :-( So the premises will always be liable for CGT and not income tax. Is maintenance to the premises an allowable business expense? I was under the impression that if it wasn't 'declared' as a business asset then maintenance and repairs were NOT an allowable expense?

Maintenance to a business property is an allowable expense.


It is just the premises may need a bit of remodelling to be suitable for my needs so there will be costs including planning permission, architects drawings, and then obviously the building work itself.

At first glance - none of these are allowable business expenses although capital allowances may be available.

If this is not allowable as a business expense presumably it can be used to reduce the profit when the building is disposed of - thus reducing the CGT?

Yep!

This is not an area for the non-expert. My best advice is to seek advice.

Pennywise

"Maintenance" is an allowable against income but it is basically dealing with wear & tear, redecoration, replacement "like for like" of doors, windows, roofing, etc.

What you're talking about is improvement and/or remodelling which is completely different as it's "capital" and isn't allowable against income. It is only allowable against the eventual sale of the property for capital gains tax.

Not sure what you think you are trying to achieve by calling it domestic or business - what you call it doesn't matter. It's the actual usage that matters, so this point is a question of fact. But it's still liable for capital gains tax either way, with the potential of a lower rate if you qualify for entreprenneurs relief.