Income Tax (Earnings and Pensions) Act 2003

Chapter 5 Taxable benefits: living accommodation

Living accommodation

97 Living accommodation to which this Chapter applies

(1) This Chapter applies to living accommodation provided for—

(a) an employee, or

(b) a member of an employee’s family or household,

by reason of the employment.

(2) Living accommodation provided for any of those persons by the employer is to be regarded as provided by reason of the employment unless—

(a) the employer is an individual, and

(b) the provision is made in the normal course of the employer’s domestic, family or personal relationships.

Exceptions

98 Accommodation provided by local authority

This Chapter does not apply to living accommodation provided for an employee if—

(a) the employer is a local authority,

(b) it is provided for the employee by the authority, and

(c) the terms on which it is provided are no more favourable than those on which similar accommodation is provided by the authority for persons who are not their employees but whose circumstances are otherwise similar to those of the employee.

99 Accommodation provided for performance of duties

(1) This Chapter does not apply to living accommodation provided for an employee if it is necessary for the proper performance of the employee’s duties that the employee should reside in it.

(2) This Chapter does not apply to living accommodation provided for an employee if—

(a) it is provided for the better performance of the duties of the employment, and

(b) the employment is one of the kinds of employment in the case of which it is customary for employers to provide living accommodation for employees.

(3) But if the accommodation is provided by a company and the employee (“E”) is a director of the company or of an associated company, the exception in subsection (1) or (2) only applies if, in the case of each company of which E is a director—

(a) E has no material interest in the company, and

(b) either—

(i) E’s employment is as a full-time working director, or

(ii) the company is non-profit-making or is established for charitable purposes only.

(4) “Non-profit-making” means that the company does not carry on a trade and its functions do not consist wholly or mainly in the holding of investments or other property.

(5) A company is “associated” with another if—

(a) one has control of the other, or

(b) both are under the control of the same person.

100 Accommodation provided as result of security threat

This Chapter does not apply to living accommodation provided for an employee if—

(a) there is a special threat to the security of the employee,

(b) special security arrangements are in force, and

(c) the employee resides in the accommodation as part of those arrangements.

101 Chevening House

This Chapter does not apply to living accommodation provided for an employee if the accommodation is—

(a) Chevening House, or

(b) any other premises held on the trusts of the trust instrument set out in the Schedule to the Chevening Estate Act 1959 (c. 49),

and the employee is a person nominated in accordance with those trusts.

Benefit of living accommodation treated as earnings

102 Benefit of living accommodation treated as earnings

(1) If living accommodation to which this Chapter applies is provided in any period—

(a) which consists of the whole or part of a tax year, and

(b) throughout which the employee holds the employment,

the cash equivalent of the benefit of the accommodation is to be treated as earnings from the employment for that year.

(2) In this Chapter that period is referred to as “the taxable period”.

(3) Section 103 indicates how the cash equivalent is calculated.

Calculation of cash equivalent

103 Method of calculating cash equivalent

(1) The cash equivalent is calculated—

(a) under section 105 if the cost of providing the living accommodation does not exceed £75,000; and

(b) under section 106 if the cost of providing the living accommodation exceeds £75,000.

(2) Section 104 (general rule) sets out how to calculate the cost of providing living accommodation for the purpose of determining whether or not it exceeds £75,000.

(3) In this Chapter—

• “annual value”,

• “person involved in providing accommodation”, and

• “the property”,

have the meaning given by sections 110 to 113, and “the taxable period” has the meaning given by section 102(2).

104 General rule for calculating cost of providing accommodation

For any tax year the cost of providing living accommodation is given by the formula—

A + 1 - P

where—

• A is any expenditure incurred in acquiring the estate or interest in the property held by a person involved in providing the accommodation,

• I is any expenditure incurred on improvements to the property which has been incurred before the tax year in question 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 of A or I, or

  (b)

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

Accommodation costing £75,000 or less

105 Cash equivalent: cost of accommodation not over £75,000

(1) The cash equivalent is to be calculated under this section if the cost of providing the living accommodation does not exceed £75,000.

(2) The cash equivalent is the difference between—

(a) the rental value of the accommodation for the taxable period, and

(b) any sum made good by the employee to the person at whose cost the accommodation is provided that is properly attributable to its provision.

(3) The “rental value of the accommodation” for the taxable period is the rent which would have been payable for that period if the property had been let to the employee at an annual rent equal to the annual value.

(4) But if the person at whose cost the accommodation is provided pays rent for the whole or part of the taxable period at an annual rate greater than the annual value—

(a) subsection (3) does not apply to that period or (as the case may be) that part of it; and

(b) instead the “rental value of the accommodation” for that period or part is the rent payable for it by that person.

(5) If the rental value of the accommodation for the taxable period does not exceed any sum made good by the employee as mentioned in subsection (2)(b), the cash equivalent is nil.

Accommodation costing more than £75,000

106 Cash equivalent: cost of accommodation over £75,000

(1) The cash equivalent is calculated under this section if the cost of providing the living accommodation exceeds £75,000.

(2) To calculate the cash equivalent—

• Step 1

  Calculate the amount that would be the cash equivalent if section 105 applied (cash equivalent: cost of accommodation not over £75,000).

• Step 2

  Calculate the following amount (“the additional yearly rent”)—

  

  where—

  • ORI is the official rate of interest in force for the purposes of Chapter 7 of this Part (taxable benefits: loans) on 6th April in the tax year, and

  • C is the cost of providing the accommodation calculated—

    (a)

    in accordance with section 104 (general rule for calculating cost of accommodation), or

    (b)

    in a case where section 107 applies (special rule for calculating cost of providing accommodation), in accordance with that section instead.

• Step 3

  Calculate the rent which would have been payable for the taxable period if the property had been let to the employee at the additional yearly rent calculated under step 2.

• Step 4

  Calculate the cash equivalent by—

  (a)

  adding together the amounts calculated under steps 1 and 3, and

  (b)

  (if allowed by subsection (3)) subtracting from that total the excess rent paid by the employee.

(3) In step 4—

(a) paragraph (b) only applies if, in respect of the taxable period, the rent paid by the employee in respect of the accommodation to the person providing it exceeds the rental value of the accommodation for that period as set out in section 105(3) or (4)(b), as applicable, and

(b) “the excess rent” means the total amount of that excess.

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.

Apportionment of cash equivalent

108 Cash equivalent: accommodation provided for more than one employee

(1) If, for the whole or part of a tax year, the same living accommodation is provided for more than one employee at the same time, the total of the cash equivalents for all of the employees is to be limited to the amount that would be the cash equivalent if the accommodation was provided for one employee.

(2) The cash equivalent for each of the employees is to be such part of that amount as is just and reasonable.

Other tax implications

109 Priority of this Chapter over Chapter 1 of this Part

(1) This section applies if—

(a) under this Chapter the cash equivalent of the benefit of living accommodation is to be treated as earnings from an employee’s employment for a tax year, and

(b) under Chapter 1 of this Part an amount would, apart from this section, constitute earnings from the employment for the year in respect of the provision of the accommodation.

(2) The full amount of the cash equivalent is to be treated as earnings from the employment for that year under this Chapter.

(3) The amount mentioned in subsection (1)(b) is to constitute earnings from the employment for the year under Chapter 1 of this Part only to the extent that it exceeds the amount mentioned in subsection (2).

Supplementary

110 Meaning of “annual value”

(1) For the purposes of this Chapter the “annual value” of living accommodation is the rent which might reasonably be expected to be obtained on a letting from year to year 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.

(2) For the purposes of subsection (1) that rent—

(a) is to be taken to be the amount that might reasonably be expected to be so obtained in respect of the letting of the accommodation, and

(b) is to be calculated on the basis that the only amounts that may be deducted in respect of services provided by the landlord are amounts in respect of the cost to the landlord of providing any relevant services.

(3) If living accommodation is of a kind that might reasonably be expected to be let on terms under which—

(a) the landlord is to provide any services which are either—

(i) relevant services, or

(ii) the repair, insurance or maintenance of any premises which do not form part of the accommodation but belong to or are occupied by the landlord, and

(b) amounts are payable in respect of the services in addition to the rent,

the rent to be established under subsection (1) in respect of the accommodation is to be increased under subsection (4).

(4) That rent is to include—

(a) where the services are relevant services, so much of the additional amounts as exceeds the cost to the landlord of providing the services;

(b) where the services are within subsection (3)(a)(ii), the whole of the additional amounts.

(5) In this section “relevant service” means a service other than the repair, insurance or maintenance of the accommodation or of any other premises.

111 Disputes as to annual value

(1) This section applies if there is a dispute as to the amount of the annual value of living accommodation for the purposes of this Chapter.

(2) The question is to be determined by the General Commissioners.

(3) The Commissioners must hear and determine the question in the same way as an appeal.

112 Meaning of “person involved in providing the accommodation”

For the purposes of this Chapter “person involved in providing the accommodation” means any of the following—

(a) the person providing the accommodation;

(b) the employee’s employer (if not within paragraph (a));

(c) any person, other than the employee, who is connected with a person within paragraph (a) or (b).

113 Meaning of “the property”

For the purposes of this Chapter “the property”, in relation to living accommodation, means the property consisting of that accommodation.