HMRC internal manual

Employment Income Manual

EIM21650 - Particular benefits: transfer of an asset previously available for use by a director or employee

Section 206(3) ITEPA 2003

Where employment related benefits that are taxable as general benefits under Chapter 10 of Part 3 of ITEPA are provided to employees under an optional remuneration agreement, the normal method of working out the cash equivalent for those benefits does not apply. The relevant amount to treat as earnings from the employment for that tax year is the greater of:

  • the cost of the benefit, and
  • the amount foregone with respect to the benefit

This includes situations where an asset is transferred to an employee after having been provided for the employee’s use as an employment-related benefit.

Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000.

The special rule (Section 206(3) ITEPA 2003) for calculating the chargeable benefit only applies to assets for which all the following conditions are satisfied:

  • The asset is not an excluded asset. (See below).
  • The asset has previously been used to provide a benefit to an employee - not necessarily the same employee as the one to whom the asset is transferred.
  • When the asset was used to provide a benefit to an employee, the cost of the benefit used to work out the taxable amount was calculated using the rules in section 205 ITEPA 2003 (as in EIM21630).

Note. This condition means that the special rule does not apply to benefits with their own specific rules for calculating the cash equivalent, such as cars, vans and living accommodation.

  • The asset was first provided for the private use of a director or employee on or after 6 April 1980.

Excluded Assets

An asset is an excluded asset if it is:

  • Computer equipment that was covered by the limited exemption in section 320 ITEPA 2003. (Note. As explained in EIM21652, a computer that was first made available after 5 April 2006 will not be an excluded asset).
  • A cycle or cyclist’s equipment that has met the conditions for exemption under section 244 ITEPA 2003 (see EIM21664).
  • A car, as defined in the rules on car benefits (see EIM23115).

Earnings charge to be considered first

If the asset is chargeable as earnings from the employment under Section 62 ITEPA 2003 the amount chargeable is its second-hand value in the hands of the employee less anything he pays for it (see EIM00540).

The special rule for working out the taxable amount under the benefits code

If the transfer of the asset is only chargeable as a benefit “by reason of the employment”(see EIM20501), the special rule relating to directors and employees (except for 2015/16 and earlier those in an excluded employment (see EIM20007)), is that the amount chargeable is:

  • the higher of
  • the market value of the asset at the date of transfer (see EIM21632) or
  • the market value of the asset when first made available for the private use of a director or an employee, except one in an excluded employment, less the aggregate of the amount of the cost of the benefit during the period when it was provided as a benefit


  • any sum paid by the individual receiving the asset to the person transferring it.

Note that if there has been any business use of the asset whilst it was available for private use, take the gross amount of the benefit before any Section 336 ITEPA 2003 deduction is made. In nearly all cases the second-hand value in the hands of the employee will be the same as the market value as defined in EIM21632. In practice therefore the special rule should be used in all cases involving directors or employees, except for 2015/16 and earlier those in an excluded employment, where the market value of the asset at the date of transfer is less than the market value when it was first acquired.