Cost of attic conversion... possible to claim?

CapedCrusader

Hi folks,

If a sole trader had their attic converted into an office for the purpose of conducting his business, would it be possible for this cost be claimed against tax? Could 100% of the cost be claimed?

Secondly... is there a standard set of depreciation rates somewhere when computing depreciation of assets such as office furniture and it equipment?

Thanks all

mkdon05

You could claim the cost of the attic conversion against tax but you then turn this portion of the house into business premises and not principle private residence. This in turn means that if you sell the house you would be liable for capital gains tax. You would have to weigh up, if saving a couple of quid each year for the next few years (as in capital allowances) is more beneficial than paying capital gains on the sale of your house.

Rough guess = 10,000 build attic = 1250 cap allowances against tax for 8 yers


sell house 500,000 bought for 300,000 = 200,000 profit

the attic is now , say, 1/5 of your house = 40000 of the profit

this is charged at 20% making a liability of €8000

Obviously these figures are all guesswork, but it might give you an idea. You should probably talk to your accountant about it.


As for depreciation rates, you should depreciate them over the course of their useful life.
So while a desk could last you 8 years (charge 12.5%) a computer will be fairly useless in maybe 3 years (therefore charge 33%)
The important thing is to be prudent in your estimations.

Snowdrop

I strongly recommend that you consult your accountant/tax advisor and get professional advice before proceeding with the attic conversion. There are many implications to consider not least of all capital gains tax.

pigeonbutler

mkdon05 wrote: »

As for depreciation rates, you should depreciate them over the course of their useful life.
So while a desk could last you 8 years (charge 12.5%) a computer will be fairly useless in maybe 3 years (therefore charge 33%)
The important thing is to be prudent in your estimations.

Let's not mix up the word depreciation with Capital Allowances.

Depreciation is NOT allowed as an expense in calculating taxable income.

Certain assets (Plant and Machinery, Industrial Buildings) can qualify for capital allowances. Plant and Machinery at 12.5% per year for 8 years, Buildings at 4% for 25 years.

Don't assume that all assets can qualify for Capital allowances. Seek advice on it.

My gut feeling is that the attic conversion may not fully qualify. If you get advice in advance it may be possible to maximise the availability of capital allowances, but as a previous poster mentioned you should consider the potential CGT impact on a future sale of your home.

It may be more tax effective to rent a small office space somewhere. Although obviously it may be more difficult from a cash flow perspective.

mkdon05

pigeonbutler wrote: »

Let's not mix up the word depreciation with Capital Allowances.

Depreciation is NOT allowed as an expense in calculating taxable income.

Depreciation is charged in your accounts and will represent the cost of using the asset for the year. Giving you a profit or loss figure after charging it.
It does however have to be added back when calculating your taxable profit for the year. (You choose what rate to depreciate the asset.)

Capital allowances are given on qualifying assets at the rate of 12.5% per year against your Taxable Profit


Just to be clear on that.

Mr. Incognito

If a sole trader had their attic converted into an office for the purpose of conducting his business, would it be possible for this cost be claimed against tax?

No. Unless you are allocating this as "business premises" which will affect the valuation of your house and the base cost calculation would be a nightmare.

Secondly... is there a standard set of depreciation rates somewhere when computing depreciation of assets such as office furniture and it equipment?

As pointed out you can take 12.5% of the assets against Case 1 trade Income for the next 8 years.

This is not depreciation which is an accountancy term but capital allowances.