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OTS proposals to change the taxation of living accommodation

17 September 14 | By: Jas Jhooty


The Office of Tax Simplification (OTS) recently published their final report on the proposed simplification of certain areas of Benefits and Expenses legislation. This final report proposed changes be made to the way accommodation benefits and termination payments are taxed. In this article we examine the proposed changes to the taxation of living accommodation.

The current system

Where employers provide free or subsidised accommodation to employees, there are some quite complicated rules to decide what tax charge the employee will bear. The rules we currently have date back to 1977 and are problematic to administer: -

  • An employee’s accommodation can be tax-free if it’s customary for employees in that sort of job to get accommodation, and they can show that it helps the employee perform his duties. Deciding what is customary isn’t always simple, because it’s not necessarily clear what a sample of typical employees is. E.g. if an employee working for a university has the job title of “Bursar”, their provided accommodation would be tax-free based on the list of exempt occupations last published in 1977. However if another employee working for another university performing the same duties of employment had a more modern job title of “Business Manager” their housing would not be exempt and they would have to pay tax on their provided living accommodation.
  • If you there is no exemption due, there is a complicated calculation which involves the 1973 pre-poll tax rateable value (even if the property being provided did not exist then!), as well as the cost of the property if it is owned — so two employees could be in apparently identical accommodation, but end up with different tax bills because the properties were acquired years apart and the acquisition costs were different.

OTS proposals

The OTS want to address these anomalies by bringing in a much simpler regime.

Exempt accommodation

The OTS are proposing to tax only “perk” accommodation so accommodation provided to get the job done would be exempt. E.g. it is proposed that exempt accommodation would fall into one of the following categories: -

  • the employer requires the employee to live in the accommodation to perform their duties and this is encapsulated in the contract of employment;
  • the reason the employer requires the employee to live in the accommodation is that it is necessary to enable the employee to protect buildings, people or assets; or
  • the reason the employer requires the employee to live in the accommodation is because the job requires a very early start in the morning or a very late finish at night; or
  • the reason the employer requires the employee to live in the accommodation is a result of regulatory requirements.

The previous exemption of living accommodation being exempt because it was customary to provide it will be removed from the legislation.

Proposed rules for what value is taxed

The OTS are recommending taxing all non-exempt accommodation on the open market rental value that the property would fetch, even if it is owned outright. It is further proposed that for simplicity these values would have to be reassessed or increased for inflation every five years.

What emTax expects the new rules will mean

  • Employees will pay tax on the rental value of accommodation provided to them.
  • There will be exemptions for certain staff who really need to have the accommodation provided for them to do their duties, e.g. caretakers or people who genuinely are on 24-hour callout.
  • There may be a let-out for very basic accommodation, but anything that provides a room and some cooking facilities (even shared facilities) is likely to count as taxable accommodation.
  • There will be a substantial number of employees currently enjoying exempt living accommodation status due to its provision being customary, who will now have to pay tax under these proposed changes.


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