How tax-efficient is it for me to build an office in the garden?

Property Clinic: You will need to separate the fit-out expenses from the building costs, and be mindful of VAT and capital gains

I am a photographer and a sole trader, and am looking to build an office in my back garden so I can dispense with renting an office in my local town and work from home. Before I proceed, I was wondering what the most tax-efficient way to do this is. For example, I’ve heard it might be possible to write off up to €3,000 pa for depreciation every year for seven years if you go the wooden/garden office route. Is this correct? Is that available if you opt to go with a local builder and a block-built structure?

By renting an office to carry out your photography business, you are permitted to account for the rent expense against your trading income at the end of each accounting period, writes Suzanne O’Neill. Replacing the rented space with a home office has certain tax implications. The overall costs associated with the construction of the office in the garden will not be  capital allowances (tax depreciation). These costs would include concrete foundation work, building of walls, insulation and placing a roof on the office. In our view, a wooden-type structure will not qualify for annual capital allowances either.

Under various case law, broadly speaking, the premises within which the trade is carried on is treated differently to the plant with which it is carried on, with only the latter qualifying for tax relief. You will be able to claim capital allowances on the fit-out of the office. For example, purchase of office furniture, lights, computer equipment and other fixtures and fittings. Capital allowances operate at a rate of 12.5 per cent and are utilised over an eight-year period. You will therefore need to separate the fit-out expenses from the costs of building the office structure, to correctly reflect your capital allowance claim.

There are other taxes to be considered also, such as reclaim of VAT on costs if you have a VAT registered business. Any future sale of the office structure may give rise to capital gains, if the sale proceeds to exceed the original costs of construction.

Published in The Irish Times. Answered by Suzanne O’Neill, Tax Partner at RSM Ireland.