Provision of accommodation

A person is potentially liable to tax if he or she is provided with accommodation by reason of employment or by the employer for other reasons. The charity may simply pay a contribution to living accommodation, in which case it would normally be treated as salary, subject to income tax or NICs.

If, instead, the charity owns or leases the property in its own name and provides the accommodation, a benefit arises on three basic elements:

  • the rental value
  • an additional charge where the cost or value of the accommodation (including any improvements by the charity) exceeds £75,000, and
  • a further charge with respect to repairs, heat and light and other similar expenses connected with the property or with the provision of furniture for the property

The tax charge is made up of the basic charge and the additional charge (if applicable).

Basic charge

The basic charge is the higher of:

  1. the gross rateable value of the property (GRV) as determined for the purposes of the old general rating system, and
  2. the rent, if any, paid by the employer

If the GRV is not known, HMRC will accept estimated figures, ideally based on the known GRVs of similar properties nearby.

Additional charge

The additional charge applies only if the cost of the property, including the cost of any improvements carried out subsequently, comes to more than £75,000. If so, the excess over £75,000 is treated as though it were an interest-free loan to the employee. The tax charge is found by applying HMRC’s official interest rate for the year to the excess. The official average interest rate currently stands at 2.75% since 23 August 2016 (3% prior to that).

For example, if a house cost £250,000 and the official interest rate is 2.75%, the additional charge for the tax year is calculated as follows:

(£250,000 – £75,000) at 2.75% = £4,812.50

Substitution of market value (MV)

If the cost of a house or flat is more than £75,000 and it has been owned, directly or indirectly, by the employer for at least six years at the time the employee moves in, you then have to calculate the additional charge substituting the market value for the cost. The figure taken is the MV current when the employee moves in. This remains the basis of the calculation until that employee moves out and another employee moves in, at which point the MV is updated.

Associated benefits

Any additional benefits relating to the property such as council tax, water rates, cleaning and telephone being met by the employer may also create a charge to tax.


The exemption to accommodation being taxable applies where it is provided because:

  • it is necessary for the proper performance of duties
  • it is customary for such an employment and it enables better performance of duties, or
  • it is to deal with a special security threat

There is also a fourth exemption that may apply to certain posts.  The present legislation has been in place since 6 April 1977. Before that there was a category of exemption known as “representative occupation”. Any post that existed before that date, and which continues to exist without any significant change to the duties attached to it, can be considered for exemption under the old rules. There are three conditions that must be satisfied:

  • The employee resides in a house provided rent-free by the charity and
  • as a term of the contract of employment the employee is required to reside in that particular house and is not allowed to reside anywhere else and
  • the employee’s occupation of the house is for the purpose of the employment, the nature of the employment being such that the employee is reasonably required to reside in it for the better and more effectual performance of the duties.

If the accommodation falls within one of the above exemptions there is a cap of 10 per cent of the net earnings of the employment placed on any other related taxable benefits:

  • heating, lighting and cleaning of premises
  • repairs, decoration and maintenance, and
  • the provision of furniture, equipment or other items to the extent that they are for normal domestic occupation

The Government has committed to consulting on the taxation of employer-provided living accommodation and charities should be aware that the rules may change. However, no call for evidence has yet been published.

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