Accommodation Benefit in Kind

If a house, flat or any property owned or rented by your employer is made available for your use, there is a taxable benefit, unless the accommodation is ‘job-related’.

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. Accommodation provided for the following might be exempt:

• Better performance of the employee’s duties (ITEPA 2003 s99).
• A threat to the employee’s physical security is an exempt benefit (ITEPA 2003 s99).
• If it is ‘customary’ for employers to provide living accommodation for employees (see HMRC manual page at EIM11351).

When looking at the amount of the accommodation benefit charge, this depends on whether the property cost the provider £75,000 (£75K) or less. If the employer has acquired the property at a cost in excess of £75K, the cash equivalent of the benefit is calculated under ITEPA 2003 s106 (see EIM11480 for the method of calculation). There are four steps to the calculation. These steps must be followed even if there is evidence that the director or employee is paying a full market rent.

What the manual outlines is that there are two methods:

1. Cost basis (example on EIM11483)
2. Market value known as the six-year rule (EIM11484).

Gross Rateable Value

For both methods you need to know the gross rateable value of the property. The use of gross rateable values is anomalous given that domestic rates are no longer payable in parts of the UK and that the rateable values have not been adjusted for many years. Nevertheless, where such a figure exists, then it may continue to be used. Where there is a new property without a rateable value, or where a property has been materially altered, then a notional value should be used (EIM11433 and EIM11434).

If it is proving difficult to establish the gross annual value of the property, the following steps can be taken to obtain a figure:

1. If the property was built pre 1989 the rateable value can be found on the water rates bill or from enquiries made to the local council’s rates office.
2. If the property was built post 1989 there will not be a rateable value established nor a rateable value on the water rates (as all new properties have water meters!). Your only course of action is to use your best estimate of what the gross rateable value would be now, e.g., use the council tax figure.

Which Method Do You Use?

The cost basis applies when the market value basis does not; therefore, the first step is to ascertain if the market value basis applies.

Market Value Basis

(EIM11473) – The market value (MV) basis applies where:

• The cost of the accommodation on 6 April in the tax year under consideration (see EIM11429) exceeds £75,000 and
• The employee first occupied the accommodation after 30 March 1983 and
• Throughout the six years up to the date the employee first occupied it, an interest in it had been held by:
• The employer, or
• The person providing it, or
• A person (other than the employee) connected with either of them.

Where market value is used, EIM11477 outlines that we substitute the cost for the market value.

For the purposes of s106 and in particular s107 ITEPA 2003, the cost of providing the living accommodation where the market value basis applies is MV plus I minus P, where:

• MV – is the market value of the interest in the accommodation held by any relevant person at the date of the employee’s first occupation of it
• I – is any expenditure incurred on improving it on or since that date until the day before the beginning of the tax year and
• P – is the amount the employee pays to the person involved in providing the accommodation:
  a) in reimbursement of its initial cost or I, or
  b) for the grant of a tenancy.

Comparing the Two Calculations

Cost Basis

An employee is provided with living accommodation in the United Kingdom that was acquired by his employer for £135,000 in 1991. The employee has been provided with the accommodation since 6th April 2025, and so the cost basis applies. In 2025/26 the employee paid a rent of £900 per annum for it, and for that year the official rate of interest (ORI) was 3.75% and the gross rating value was £1,200.

The calculation of the amount of earnings for 2025/26 is:

Market Value

I have used the same details above, but the only difference is that the employee has already been provided with the same accommodation for the last 6 years, and we need to use the market value method.
EIM11477 outlines that we substitute the cost for the market value when it was first occupied by the employee; the value when first occupied was £250,000. We assume there are no improvements made to the property.

Conclusion

The accommodation benefit is calculated before reducing the benefit by the amount of rent actually paid by the director.

Other Considerations

• There may be exceptions to the benefit if they are job-related (EIM11341 onwards), but be mindful it might not be available to a director that has a material interest in the employing company (EIM11366).
• If utilities are paid for by your employer, that could be an additional benefit in kind. Again, there may be exemptions (like public house manager EIM68450).
• If the property is worth over £500k, then your client will also need to consider ATED implications. More information can be found at https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics and https://www.gov.uk/government/publications/annual-tax-on-enveloped-dwellings-technical-guidance

For more information, please contact us at: consultancy@vantagefeeprotect.com

Kabita Tank
Tax Advisor