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Tax on barn conversion?

Tax | Income Tax Helpful? 3

Asked by martin155, submitted 11 October 2012.

Open Quote I own a house with a barn attached to it. This used to be used for storage from the main house, a basic gym and basic sleeping accommodation whenever kids pals stayed overnight. I am now converting this barn into a family home which will be sold to help pay off divorce debt. How can I avoid paying tax on any profit, which may be £100.000?

Also, the separation and sale of the barn from the main house will reduce the value of my main house - does this have tax implications?
End Quote

Answered by Justin on 15 October 2012

Provided the barn qualifies for private residence relief you shouldn't have any capital gains tax to pay on profits from the sale.

You can read HMRC's guidance here, but the key point seems to be whether your garden/grounds are less than half a hectare (1.24 acres).

If so, then the barn will likely be viewed as part of your main residence (assuming the house you're referring to is your main residence) hence should be exempt from capital gains tax. If your grounds exceed half a hectare then whether the barn qualifies for relief depends on whether it's 'needed for the reasonable enjoyment of your dwelling house as a home'.

The answer to the latter question is obviously not black and white. Given it doesn't sound like an integral part of your home HMRC might argue the answer is no, although you could obviously counter argue. If private residence relief is not allowed then you should be able to deduct the costs of conversion from any gain made on the barn.

Probably worth talking to an accountant with expertise in this area for more definitive guidance, but I hope the above points you in the right direction.


Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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