Living accommodation: where living accommodation is part of larger premises: example 2
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). In this example the non-living accommodation part of the premises commands twice as much cost or rent per square metre than the living accommodation part. For an example where the non- living accommodation and living accommodation parts command the same cost or rent per square metre see example EIM11504.
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 twice as much 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||200,000||(£300,000 x 2/3)|
|part relating to flat||100,000|
|additional yearly rent||25,000||at 5% =||1,250|
|gross rating value||2,400|
|less part relating to shop||1,600||(£2,400 x 2/3)|
|gross rating value of flat||800|
|less rent paid by employee||800|
|Section 105 benefit||nil||nil|
|less excess rent (£1,000 less £800)||200|