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HMRC internal manual

Employment Income Manual

Living accommodation: Section 106 ITEPA 2003: amount of benefit where market value 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 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 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 orthe market value basis see EIM11473.


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
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.