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resi property - owned by company -mixed use

I would normally shy away from advising a client from owning his home within a company, but rather against the grain, that is what is happening!

The property is a fairly large old building consisting of a three bedroom owners accomodation, plus a part sectioned off and extended and used as a bunkhouse.  The lodging part sleeps 26 and brings in approx £60k rents per year.   The company also does adventure trail walks so it all fits together reasonably well.  (further downside in that vat will need to be accounted for on the £60k).

I advised that there will be a bik on the provision of living accomodation, may i just check my rationale.

The cost of the whole property is £500k.  We estimate that the value of the living accomodation is £300k.  I am going to assume for the purposes of this that the rateable value is £7k pa.

I calculate that the annual bik using s107:

7,000 + ((300-75)*4%)) = £16,000

Q, are we able to apportion the cost of the property in this way (i.e. 300 out of 500).

Q, he is personally providing £100k of the £500k purchase price by way of loan to the company.  are we able to reduce the £100k to reduce the formula in s104?  (probably not).

Q, would you suggest that we get this rationale cleared with HMRC in advance of any p11d work.

Q, how on earth do we find the rateable value?


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Westcott v Bryan


There's no provision in the legislation for apportionment (except of the "cash equivalent" between employees), but I'd say that it was a reasonable proposition to argue that the living accommodation being provided (which has a different meaning from a dwelling house, that would probably be the whole building) is just the main house, such that you can make the apportionment of the cost that you have proposed.

If it is just the main house that is used by the director and the family, get in place a documented restriction that he is only entitled to use the main house and may not use the bunk house.

Then yes. I think you need to (try at least to) get HMRC to agree.  For most benefits you can use the dispensation process, but living accommodation benefits are expressly excluded.

The legislation that applied at the time and the point at issue were different, but you might want to take a look at Westcott v Bryan (see EIM21201).  The managing director of the Wedgwood Pottery was provided with a house that was much bigger than he needed (or wanted), so that it could be used to entertain significant customers.  The (running) costs of providing the property should be apportioned on a "rough and ready basis".


See S.104 ITEPA 2003


£7,000 sounds way too high.  The usual suspects are (i) asking the local authority and (ii) water rates bills.  I suspect neither will be helpful in this case, since only part of the property is the living accommodation.  I did read somewhere that you could use £100 per bedroom as a rule of thumb, but that's essentially hearsay.

When you're agreeing with HMRC, perhaps see if you can negotiate a figure, and start low, obviously.

My calculation

£300 + (((£300K-£100K)-£75k) x 4%) = £5,300 (and if both spouse/partners are employed and actively involved in the business, they can have half-each).

You could then also consider a S.364 deduction for use of part of the living accommodation as office, and if a S.364 deduction, plus any rent paid by the employees reduces the net benefit down to nil, there's no Class 1A.  Otherwise the S.364 deduction isn't effective for Class 1A purposes.

Thanks (1)
By blok
11th Feb 2013 17:02


thanks steve, very comprehensive, even by your standards.

p.s. where on earth have you been recently?  you do realise that george and bkd have been holding the fort almost single handedly in your absence.

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I have been around

It's just that most of the queries that interest me seem to have already been adequately addressed before I've seen them just lately.

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By blok
13th Feb 2013 17:15



your formula alows for the £100k loan to reduce the benefit.  are you sure the loan of £100 is P in the formula of s104?  i.e. is it a relevant payment?

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My mistake

Sorry, I'd read your post as he had provided £100K, I'd missed the part about it being a loan, and that you'd already referred to S.104.

You might be able to argue that it's a relevant payment, if it's a contribution towards the price and he's taking an equity share, rather than it being a loan (circumstance a). Or you might be able to argue that the loan was made in consideration for the grant of  his tenancy (circumstance b).

Otherwise, yes, my calcultion is wrong in that respect.

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