Living accommodation as a taxable benefit

A charge to tax (ITEPA 2003 Part 3 Chapter 5) arises when an employee is provided with living accommodation by his employer (or by another person) where the provision is by reason of the employment and the accommodation is provided:

• rent free, or
• at a rent less than that paid by the person providing it, or
• at a rent less than the amount chargeable under Section 103 ITEPA 2003.

There is no statutory definition of ‘living accommodation’ and so it is given its everyday meaning. Examples of what is clearly ‘living accommodation’ are houses, flats, houseboats, holiday villas and apartments.

By contrast it does not cover accommodation in a hotel room nor other forms of board and lodging. It covers non-residential accommodation such as workshops, garages or offices. These items are all accommodation other than living accommodation.

Exempt accommodation
Accommodation provided for the better performance of the employee’s duties or provided by the employer because there is a threat to the employee’s physical security is an exempt benefit (s.99 & s.100 ITEPA 2003). The exemption would also apply if it is ‘customary’ for employers to provide living accommodation for employees.

HMRC manual EIM 11351 accepts the following classes of employee as receiving exempt accommodation:

• police officers and Ministry of Defence police
• prison governors, officers and chaplains
• clergymen and ministers of religion unless engaged on purely administrative duties
• pre-registration house officers before 1 August 2008 (see EIM61012)
• members of HM Forces
• members of the Diplomatic Service
• managers of newsagent shops that have paper rounds, but not those that do not
• managers of public houses living on the premises
• managers of traditional off-licence shops, that is those with opening hours broadly equivalent to those of a public house, but not those only open from 9 until 5 or similar
• stable staff of racehorse trainers, certain key workers who live on the premises or close to the stables.

Additionally, exempt accommodation rules also apply in boarding schools where staff are provided with accommodation on or near the school premises. The qualifying personnel are:

• head teacher
• other teachers with pastoral or other irregular contractual responsibilities outside normal school hours (for example house masters)
• bursar
• matron, nurse and doctor

(Boarding schools include schools where some of the pupils are boarders.)

There are some classes of employees for whom HMRC accept that the customary test is met but for whom the better performance test has to be considered in each individual case. For a list of these classes of employees see EIM11352.

Calculation of benefit

The way the cash benefit of accommodation is calculated depends on whether the property is:

• rented by the employer
• owned by employer and it is worth less than £75,000
• owned by employer and it is worth more than £75,000
• owned by employer but has been provided to the employee more than six years after it has been first acquired.

Calculation of the cash equivalent where the property is rented by the employer from another landlord.

The cash equivalent of the benefit is the higher of either:

a) the rent paid by the employer to the landlord or
b) the annual value of the property
less
employee contributions (ie any amount paid by the employee to the employer) for the use of the property.

The ‘annual value’ of living accommodation is defined in the legislation as the ‘the rent which might reasonably be expected if:

a) the tenant undertook to pay all taxes, rates and charges usually paid by a tenant, and

b) the landlord undertook to bear the costs of the repairs and insurance and the other expenses (if any) necessary for maintaining the property in a state to command that rent.’

In other words, annual value is the rent which might reasonably be expected to be obtained on letting the property if the tenant paid all the usual household bills and the landlord met all repair and maintenance costs.