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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Particular benefits: transfer of an asset previously available for use by a director or employee: example

Section 206(3) ITEPA 2003

Example

A company buys a yacht for £75,000 on 6 April 2003, which is its market value at that date.

The company remains its owner but makes it available for the sole use of a director and his family throughout 2003/2004.

In the same year the employer spends £3,400 on insurance, fuel, maintenance, servicing and mooring charges.

The director does not pay the company anything for its use.

On 6 April 2004 the company sells the yacht to the director for £37,500 when its open market value is agreed to be £50,000.

The amount of the benefit chargeable in 2003/2004 for the yacht being available for the director’s use is:

Annual value of the use of the yacht (£75,000 x 20%) £15,000
   
Running expenses £3,400
Chargeable benefit 2003/2004 £18,400

The chargeable benefit arising from the transfer of the yacht to the director on 6 April 2004 is:

Market value of yacht on 6 April 2003 £75,000
   
Less amount taxed as benefit 2003/2004 £18,400
  £56,600
Less amount paid by director £37,500
Chargeable benefit 2004/2005 £19,100

If the market value had been £60,000 instead of £50,000 on 6 April 2004 the chargeable benefit for 2004/2005 would have been:

Market value of yacht on 6 April 2004 £60,000
   
Less amount paid by director £37,500
Chargeable benefit 2004/2005 £22,500

This is because the amount chargeable (Section 206(3) ITEPA 2003) is:

  • the higher of

    • the market value of the asset at the date of transfer or
    • the market value of the asset when first made available for the private use of a director or an employee, except for 2015/16 and earlier those in an excluded employment, less the aggregate amount of the cost of the benefit during the period when it was provided as a benefit

less

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

See EIM21650.