QUESTION: My husband and I run a florist company and currently rent premises in the city centre. The business is going well, but with rents increasing and our online business being most profitable we are considering giving up the current lease and operating from the garage attached to our family home. The company would pay for renovations to make it fit for purpose; new electrics, water systems, heating system, refrigeration, worktables, etc. Would the company get tax relief for these costs?
ANSWER: Working close to home is the dream for many of us and you can’t get much closer than working from your home. However, you need to weigh up the tax and non-tax consequences of working from a residential property against zero commute.
The company will be able to get tax relief in the usual way for any free-standing equipment it buys for the new space, such as worktables, refrigerators, etc. Since these are moveable items that can be moved from one premises to another there is no tie to where the business is currently operated from.
The difficulty comes when a business incurs structural costs or assets that become integrated into the building, such as electrics, water, and heating systems. A company can claim tax relief on capital costs when they incur the costs and when it owns an interest in a property. The company is unlikely to own an interest in the property unless there is a formal lease agreement between the company and yourselves as property owners.
However, with a formal lease agreement brings capital gains tax and stamp duty implications which will likely outweigh the benefit of claiming tax relief on the fixtures.
Without a formal lease agreement in place, the company incurring these costs would be seen as increasing the value of the directors’ home thereby creating a benefit in kind. The alternative to avoid any tax consequences, the directors could incur the fixtures costs personally.
Looking ahead, should you ever sell the family home and move elsewhere, ordinarily the disposal of your home house is not subject to capital gains tax, however since part of the property was used exclusively for business purposes that aspect of the gain will not qualify for this private residence relief.
Other non-tax issues that you might not have considered are whether your mortgage lender and the local authority needs to be advised that you are running a business, is your current property insurance sufficient and would business rates apply?
While the move may make sense initially you should consider all factors before incurring the costs.
- KellyAnne Murtagh (k.murtagh@fpmaab.com) is senior tax manager at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
