Income Tax (Earnings and Pensions) Act 2003

107 Special rule for calculating cost of providing accommodation

(1) This section contains a special rule for calculating the cost of providing living accommodation which—

(a) operates for the purposes of step 2 of section 106(2) (calculating the additional yearly rent), and

(b) accordingly only operates where the cost of provision for the purposes of section 106(1) (as calculated under section 104) exceeds £75,000.

(2) This section applies if, throughout the period of 6 years ending with the date when the employee first occupied the accommodation (“the initial date”), an estate or interest in the property was held by a person involved in providing the accommodation.

It does not matter whether it was the same estate, interest or person throughout.

(3) For any tax year the cost of providing the living accommodation for the purposes mentioned in subsection (1)(a) is given by the formula—

MV + I - P

where—

• MV is the price which the property might reasonably be expected to have fetched on a sale in the open market with vacant possession as at the initial date,

• I is any expenditure incurred on improvements to the property which has been incurred during the period—

  (a)

  beginning with the initial date, and

  (b)

  ending with the day before the beginning of the tax year,

  by a person involved in providing the accommodation, and

• P is so much of any payment or payments made by the employee to a person involved in providing the accommodation as represents—

  (a)

  reimbursement (up to an amount not exceeding MV) of any expenditure incurred in acquiring the estate or interest in the property held on the initial date,

  (b)

  reimbursement of I, or

  (c)

  consideration for the grant to the employee of a tenancy or sub-tenancy of the property.

(4) In estimating MV no reduction is to be made for an option in respect of the property held by—

(a) the employee,

(b) a person connected with the employee, or

(c) a person involved in providing the accommodation.