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HMRC internal manual

Employment Income Manual

Living accommodation: Section 106 ITEPA 2003: amount of benefit where cost basis applies: example

Section 106 ITEPA 2003

This page shows how to calculate the Section 106 ITEPA 2003 benefit of provided living accommodation in a cost basis case (see EIM11429). For an example of how you calculate the cost of providing living accommodation in such a case see example EIM11481.

For information on whether there is a benefit under Section 105 or 106 see EIM11428.

For deciding whether the cost of providing living accommodation is on the cost basis or the market value basis see EIM11473.


An employee is provided with living accommodation in the United Kingdom that was acquired by his employer for £135,000 in 1982. The employee has been provided with it since 1985 and so the cost basis applies. In 2002/03 the employee paid a rent of £900 per annum for it and for that year the official rate of interest (ORI) was 5% and the gross rating value was £1,200.

The calculation of the amount of earnings for 2002/03 is:

  £   £  
cost of providing the accommodation 135,000      
less 75,000      
additional yearly rent 60,000 at 5% = 3,000  
gross rating value 1,200      
less rent paid by employee 900      
Section 105 benefit (step 1) 300   300  
less excess rent     nil  
chargeable earnings     3,300  

As the accommodation is provided for the year and the employment is held for the year, the taxable period is a year (see EIM11428).

Note that a charge may arise even where the employee claims to pay a full market rent, for example £1,800 instead of the £900 in this example. The additional yearly rent remains at £3,000. The benefit under Section 105 becomes nil (that is, annual value of £1,200 less rent of £1,200). Excess rent, not used in calculating step 1, that is the Section 105 benefit, is £600 (£1,800 less £1,200). The chargeable earnings would then be £2,400 (£3,000 less £600).