Income Tax: armed forces accommodation allowance exemption
Published 22 November 2017
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This publication is available at https://www.gov.uk/government/publications/income-tax-armed-forces-accommodation-allowance-exemption/income-tax-armed-forces-accommodation-allowance-exemption
Who is likely to be affected
Members of the armed forces who, in the future, receive an allowance to rent or maintain accommodation in the UK.
General description of the measure
This measure creates an Income Tax exemption for payments made to members of the armed forces to help meet the cost of accommodation.
Policy objective
Currently, most members of the armed forces live in accommodation provided by the Ministry of Defence. Under existing rules, living accommodation provided to members of the armed forces is free from a benefit-in-kind tax charge.
The Ministry of Defence intends to provide members of the armed forces with an accommodation allowance to help them rent or maintain accommodation in the private housing market in the United Kingdom. This does not affect members of the armed forces serving overseas.
This measure strengthens the government’s commitment to the Armed Forces Covenant and ensures that the accommodation allowance will be exempt from income tax, continuing the existing treatment where accommodation is provided by the Ministry of Defence.
The accommodation allowance will not be subject to National Insurance contributions (NICs). A Class 1 NICs disregard will be introduced through regulations after Royal Assent to Finance Bill 2017-18.
Background to the measure
This measure was announced at Autumn Budget 2017.
Detailed proposal
Operative date
The measure will have effect after the date of Royal Assent to Finance Bill 2017-18, once regulations have been laid to impose conditions on the types of allowance that qualify for the exemption.
Current law
Employees are subject to income tax on the full amount of cash received as earnings from an employment under Part 2 of ITEPA 2003.
Proposed revisions
Legislation in Finance Bill 2017-18 will introduce a new section in Chapter 8 of Part 4 of ITEPA 2003 which will provide that accommodation allowance payments to members of the armed forces are not liable to Income Tax.
The new legislation defines the accommodation allowance as an allowance paid for or towards to the cost of accommodation for a member of the armed forces.
Regulations will be laid at a further date after Royal Assent to Finance Bill 2017-18 that will set out the conditions on the types of allowances that will qualify for the exemption. These conditions will be confirmed once the Ministry of Defence has taken its final decision on the types of accommodation allowance it will provide.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| negligible | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure will affect members of the armed forces who are entitled to be provided with living accommodation by the Ministry of Defence, and who will be entitled to an accommodation allowance as an alternative if they move into private accommodation.
The measure is not expected to have any impact on family formation, stability or breakdown.
Equalities impacts
This measure benefits members of the armed forces. It will impact those protected characteristics shared by members of the armed forces.
Impact on business including civil society organisations
This measure has no impact on businesses or civil society organisations.
Operational impact (£m) HM Revenue and Customs (HMRC) or other
It is anticipated that there will be negligible operational impacts for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from the Ministry of Defence and kept under review through regular communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please email: employmentincome.policy@hmrc.gsi.gov.uk