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HMRC internal manual

Employment Income Manual

Living accommodation: where living accommodation is part of larger premises: example 1

Part 3 Chapter 5 ITEPA 2003

This page gives an example of a case where the construction of the premises is such that a separate part is clearly designed and used for business use rather than living accommodation (see EIM11502). For this example the living accommodation and non-living accommodation parts of the premises command the same cost or rent per square metre. For an example where the non-living accommodation part commands a higher cost or rent per square metre see EIM11505).

An employer purchased premises for £300,000 in 2001. The premises consist of a shop with a flat over it. An employee is allowed to live in the flat, paying rent of £1,000 per annum. There is no exemption due from the provided living accommodation charge. The gross rating value for the whole premises is £2,400. The floor space of the shop and the flat are the same. Evidence is produced that where similar premises in that area have been sold the shop space has been sold for the same amount per square metre as the flats above them. You accept that evidence as being valid for the premises you are considering. The official rate of interest for 2002/03 was 5%.

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

  £   £
cost of whole premises 300,000    
less part relating to shop 150,000 (£300,000 x 1/2)  
part relating to flat 150,000    
less 75,000    
additional yearly rent 75,000 at 5% = 3,750
gross rating value 2,400    
less part relating to shop 1,200 (£2,400 x 1/2)  
part relating to flat 1,200    
less rent paid by employee 1,000    
Section 105 benefit (£1,200 less £1,000) 200   200
less excess rent     nil
chargeable earnings     3,950