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HMRC internal manual

Pensions Tax Manual

Unauthorised payments: deemed or specific situations that are unauthorised payments: benefits in kind: living accommodation

Glossary PTM000001

Living accommodation
Living Accommodation - meaning of ‘provided for private use’

Living accommodation

Living accommodation held by an investment regulated pension scheme would be taxable property and subject to an unauthorised payments charge (see PTM134100). The following rules do not apply in the case of taxable property held by an investment-regulated pension scheme.

Where accommodation, other than work accommodation (see PTM133940), is provided for use by a person who is, or has been, a member (or someone within the person’s family or household) the cash equivalent of the benefit to the person who is, or has been, a member is taxable as an unauthorised payment. Examples of living accommodation are houses, flats, houseboats, holiday villas and apartments. Living accommodation is accommodation that allows the person to live independently, for example with a bathroom, kitchen, food storage areas as well as a bedroom etc.

The value of the benefit is the difference between

  • the annual value of the accommodation for the taxable period, and
  • any sums made good by the member to the scheme.

For all UK and overseas properties held by registered pension schemes, the annual value for this purpose is the amount of rent that would be payable if the property had been let on the open market under the terms of a commercial lease, in accordance with section 110 Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) (and section 106 ITEPA 2003 for properties over £75,000) and not the gross rating value applied to UK properties.

Employees receiving a benefit in kind from the use of UK residential property provided by their employer have the annual value calculated using the property’s gross rateable value. This is a continuation of treatment that has been applied since the repeal of the General Rate Act 1967. The unauthorised payment charge on scheme members is new legislation and therefore there is no need to apply such a continuation of treatment. The annual value of a UK property will therefore be calculated on the value of rent that would be payable under a commercial lease.


JJ Ltd Registered Pension Scheme (which is not an investment-regulated pension scheme) buys a residential property for £200,000 and allows the member James to live in it for an annual rent of £800 per month. The open market rental value of the property is £1,000 per month. The official rate of interest for the year is 5%.

The amount of the unauthorised payment calculated under Sections 106 and 110 ITEPA is as follows:

Section 105 open market rental £12,000

Rent paid by member £9,600

Benefit £2,400

Section 106 additional yearly rent

£200,000 -£ 75,000 x 5% £6,250

Excess rent Nil


Amount of unauthorised payment is £2,400 + £6,250 = £8,650

Tax due £8650 at £40 % = £3,460

Note that a charge will arise even if James pays the full market rent of £1,000 per month. The additional yearly rent remains at £6,250.

The Registered Pension Schemes (Co-ownership of Living Accommodation) Regulations 2006 - SI 2006/133 apply where the living accommodation is owned partly by the registered pension scheme and partly by other persons. The regulations have the effect of apportioning the living accommodation between the owners of the accommodation by reference to their respective shares and interests in the accommodation and the benefit that a scheme member (or a person within the member’s family or household) obtains from the use of that property is similarly apportioned. The apportioned benefit is then treated as the unauthorised payment.

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Living Accommodation - meaning of ‘provided for private use’

The cash equivalent of benefit from living accommodation that is provided for a person who is, or has been, a member is also to be treated as an unauthorised payment under section 173 Finance Act 2004.

‘Provided’ is not defined in the legislation and the word must be given its ordinary dictionary meaning of “supplied or furnished with a thing”.

In some cases provided will mean available for use whereas in others it will mean actually used.

The meaning of provided is often an issue in the case of provided holiday living accommodation.

In deciding in a particular case whether provided means available for use, or means actually used, the following question should be asked.

Why was the living accommodation bought or rented and how has it been used since acquisition?

If the living accommodation was bought as holiday accommodation for connected members and family, provided is likely to mean available for use. By contrast if it was bought as a genuine investment for letting by the registered pension scheme and has been let out commercially then provided may only mean the periods of actual use by the member.