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HMRC internal manual

Employment Income Manual

Living accommodation: where living accommodation is part of larger premises

Part 3 Chapter 5 ITEPA 2003Where the construction of the premises is such that a separate part is clearly designed and used for business use rather than living accommodation then only part of it is living accommodation. An example would be premises consisting of a shop with a flat over it. In such a case the living accommodation does not include the part clearly designed and used for business use. The living accommodation is only the flat above the shop and does not include any of the shop below.

In such a case the cost or rent of the whole of the premises has to be split to get the amount that relates to the living accommodation. The gross rating value may also have to be split but often that will not be necessary as the part that is living accommodation will have its own gross rating value. Any split should be done on a reasonable basis. Sometimes this might be based on the area of the living accommodation provided compared with the area of the whole premises (see example EIM11504). In other cases you should accept that the non-living accommodation part of the premises commands a proportionately higher part of the cost or rent. This may happen where the other part of the premises is business premises (see example EIM11505).

Do not apportion by reference to the hypothetical expense an employee might have incurred if he or she had lived elsewhere.

In any case of dispute where there is a large amount of tax involved you can consult the District Valuer for a view on the suggested split of the cost or rent. Form CG20(new) should not be used.

This guidance does not apply in the case of a provided house or flat where a room is used as an office exclusively for the duties of the person’s employment. For guidance on this type of case see EIM11503.