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Section 106 ITEPA 2003

This page shows how to calculate the Section 106 ITEPA 2003 benefit of provided living accommodation in a market value basis case (see EIM11477). For an example of how you calculate the cost of providing living accommodation in a market value basis case see example EIM11482.

For information on whether there is a benefit under Section 105 or 106 see EIM11428.

For deciding whether the cost of providing living accommodation is on the cost basis orthe market value basis see EIM11473.

Example

A house that had been owned by the employer since 1972 was first occupied by a particular employee on 6 April 1998 when the market value of the employer’s interest was £130,000. It cost the employer £60,000 in 1972 and an extension was built in 1981 at a cost of £18,000. In 2002/03 the employee paid rent of £1,000 per annum for it and for that year the official rate of interest was 5% and the gross rating value £800.

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

Ìý	£	Ìý	£
cost of providing the accommodation	130,000	Ìý	Ìý
less	75,000	Ìý	Ìý
additional yearly rent	55,000	at 5% =	2,750
Ìý	Ìý	Ìý	Ìý
gross rating value	800	Ìý	Ìý
less rent paid by employee	800	Ìý	Ìý
Section 105 benefit	nil	Ìý	nil
Ìý	Ìý	2,750	Ìý
less excess rent (£1,000 less £800)	Ìý	200	Ìý
chargeable earnings	Ìý	2,550	Ìý

Note that the cost of providing the accommodation is its market value as at 6 April 1998 (see EIM11473). This is because:

• the total cost of the property at 6 April 1998 (including the extension) exceeded £75,000 and
• the employee first occupied it after 30 March 1983 and
• the employer had owned it for at least six years by 6 April 1998, the date of the employee’s first occupation of it.

The improvements costing £18,000 are not included in the calculation of the chargeable benefit as they were incurred before the employee occupied the property.