SolvedEIM11484 | Living accommodation: Section 106 ITEPA 2003: amount of benefit where market value basis applies: example
From HM Revenue & Customs · Employment Income Manual
This page shows how to calculate the Section 106 ITEPA 2003 benefit of provided living accommodation in a market value basis case (see EIM11477). For an example of how you calculate the cost of providing living accommodation in a market value basis case see example EIM11482.
For deciding whether the cost of providing living accommodation is on the cost basis orthe market value basis see EIM11473.
Example
A house that had been owned by the employer since 1972 was first occupied by a particular employee on 6 April 1998 when the market value of the employer’s interest was £130,000. It cost the employer £60,000 in 1972 and an extension was built in 1981 at a cost of £18,000. In 2002/03 the employee paid rent of £1,000 per annum for it and for that year the official rate of interest was 5% and the gross rating value £800.
The calculation of the amount of earnings for 2002/03 is:
| £ | £ | ||
|---|---|---|---|
| cost of providing the accommodation | 130,000 | ||
| less | 75,000 | ||
| additional yearly rent | 55,000 | at 5% = | 2,750 |
| gross rating value | 800 | ||
| less rent paid by employee | 800 | ||
| Section 105 benefit | nil | nil | |
| 2,750 | |||
| less excess rent (£1,000 less £800) | 200 | ||
| chargeable earnings | 2,550 |
Note that the cost of providing the accommodation is its market value as at 6 April 1998 (see EIM11473). This is because:
the total cost of the property at 6 April 1998 (including the extension) exceeded £75,000 and
the employee first occupied it after 30 March 1983 and
the employer had owned it for at least six years by 6 April 1998, the date of the employee’s first occupation of it.
The improvements costing £18,000 are not included in the calculation of the chargeable benefit as they were incurred before the employee occupied the property.