Gross rating value for accommodation BIK

Gross rating value for accommodation BIK

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I work for a Ltd company. We've purchased a property adjacent to our head office and are leasing it out to a member of staff who is paying the market rate for property of that size and in that area.

I'm having to work through the ridiculous BIK calculations for accomodation benefits and I've been trying to find a Gross Rating Value for the property. After hours of phone calls I eventually got through to somebody at the water board who confirmed that the only information that they had relating even vaguely to a 'Gross Rating Value', was something just called a 'Rating Value' on their system. 

This value was £77. Whilst this number is great for my BIK calculations (as it seems ludicrous to make somebody pay tax on something for which they are already paying a fair market rate), it seems extremely low. Does anybody have any experience with this calculation and is this figure even possibly the correct one!?

I was expecting it to be low relative to most properties, because it's a relatively rural property with no access to public sewers. The property has no water meter and was built well before 1989.

Thank you in advance for your advice.

Kind Regards,

Andy

Replies (16)

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By Wall1690
24th Sep 2015 15:33

Isn't the "annual value" of

Isn't the "annual value" of living accommodation defined as the rent which might reasonably be expected to be obtained on letting the property?

As the employee is paying the market rent there is no basic charge - although there would be an additional charge if the property cost more than £75K.

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By jndavs
24th Sep 2015 15:52

Accommodation
This is a two part calculation:
1. Standard value plus
2. Additional charge (for properties over £75K)

In your case the standard value is the greater of £77 or what ever it costs your company to provide the accommodation.

The additional charge is
((Property purchase price + improvements - £75K) x official rate) - rent paid by your employee.

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By Andy Collins
24th Sep 2015 16:28

jndavs, that's what i believe to be correct, however we own the property (we don't lease it), therefore meaning that it costs us nothing to provide it???

The HMRC guidance note say.....

Use the greater of the ‘annual value’ (as shown in the table below) or the rent you pay.

...to give the standard value. The annual value shown in the table is the 'Gross rating value' (which is £77), as we don't pay rent. 

The calculation I'm following is shown here.....

https://www.gov.uk/expenses-and-benefits-accommodation/work-out-the-value

I'm fairly confident that I understand the formula, I'm just trying to decide if I've actually got the Gross Rating Value or not, as it seems so low!?

Wall1690,wouldn't that mean that somebody paying a fair market rate would then be paying additional BIK tax on something which isn't actually a benefit (i.e. it's the same price as going anywhere else)??? Fortunately for me, it looks like I can use the 'Gross Rating Value' because the house is old enough to have one. Otherwise, I think you're right, I need to use market rate, which then leaves our employee paying a fair rent, plus additional BIK.....sounds more like HMRC logic.

Please correct me if I'm wrong.

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By mwngiol
24th Sep 2015 16:32

Gross rating value

Isn't that something you find out from the local council?

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Replying to bendybod:
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By Andy Collins
24th Sep 2015 16:44

You would think so....

You would think so Mwngiol. I tried there first, but they sent me to the Valuation Office. I rang the Valuation Office who sent me to the District Valuers Office (not without sending me to the business rates department first), who told me that I had to ask HMRC to ask them on my behalf. HMRC told me that this was incorrect and to try the Council or the Valuation Office. The valuation office (second time around) told me to try the Council and the Council (third time now) told me that they had no such records as they'd all been destroyed! 

I then tried the water board (Severn Trent in the Midlands) and they gave me the figure. So no, the Council don't have it, at least not in Charnwood!

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Portia profile image
By Portia Nina Levin
24th Sep 2015 16:41

£77 does sound a bit low, but

£77 does sound a bit low, but not massively. I had heard that there was a "rule of thumb" of £100 per bedroom. However, unless it is a veritable mansion, the difference will be largely academic in terms of tax.

Do not forget that if the property was originally purchased for more than £75,000 and was first made available to the employee concerned more than 6 years after that initial purchase you use the market value when first made available to the employee, in place of cost, in the second part of the calculation.

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By jndavs
24th Sep 2015 18:13

Rateable value
Is the one quoted on your water bill. £77 is probably correct.

The cost of providing the accommodation can also include things like mortgage interest.
- not just rents or leasing payments paid by the employer
http://www.hmrc.gov.uk/manuals/eimanual/EIM11429.htm

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By Marion Hayes
24th Sep 2015 20:55

GRV

on old properties, provided there hasn't been a general revaluation in the area was originally available from water board and council because rates and water rates were both based on it. It is usually very low. The change to Council Tax meant that they didn't need to keep the records anymore

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By Andy Collins
24th Sep 2015 21:07

I was hoping that you weren't going to say that! That makes me want to ask two more questions....

If the employee rented the same property from somebody else and paid the same rent, there would be no BIK. So why should it be different just because they happen to be an employee? There is precisely no benefit received by the employee. Does this calculation definitely apply in this scenario?  The guy is paying £500 per month for a house worth £500 per month on the open market. Where the hell is the benefit!?

My second question is (and this might sound a bit naïve), if the.gov webpage entitled.....

'Expenses and benefits: accommodation - Work out the value'

.....doesn't mention anything about calculating interest etc then surely they can't expect people to do so?

 

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By jndavs
25th Sep 2015 08:33

Benefit?
Having worked out the benefit as outlined above, the last step is to deduct the rent paid by the employee. If this is at market rates, the benefit probably disappears.

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Replying to whitevanman:
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By Andy Collins
25th Sep 2015 08:45

The trouble is that it's a £150k property, so you take (£77 - £3000 = - £,2923)

The (£150,000 - £75,000 + £35,000 (Approx interest cost)) x 3.25% = £3,575

£3,575 - £2,923 = £652.00 benefit. And that's before I've added on the cost of refurbishing the property.

Though I have just realised, that our employee is only renting half of the property, the other half is rented by a third party (it's a 2 bed house). Does this mean that the I can factor the 'cost of accomodation' by 50%, like I can the 'annual value' and the rent?

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By jndavs
25th Sep 2015 09:35

I'm a bit rusty on the rules but I think is should be
Standard value (assuming 50% occupation)
Higher of £77 x 0.5 or cost to employer 0.5 x £35,000 = £17,500
- Is the interest figure correct £35K on a £150K mortgage seems high)
Less rent from employee (£3,000?)
Standard value £14,500

Additional charge (assuming 50% occupation)
Property value £150,000 x 0.5 less £75K = £Nil

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Portia profile image
By Portia Nina Levin
25th Sep 2015 10:57

Go and see an accountant. Because you are getting the most appalling advice here.

The cost of providing the living accommodation does not include mortgage interest. It comprises the cost of originally acquiring the property, plus the cost of improvements. It actually says so in the link that has been provided purporting to support the assertion that mortgage interest should be included.

Provided the refurbishment costs do not exceed £14,938 then there is no benefit. I can see nothing in the legislation to provide for apportionment of the benefit other than between employees.

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By jndavs
25th Sep 2015 12:40

Fair enough - as I pointed out I am a bit rusty in this area
Portia, I'm happy to stand corrected but is not the basis of any benfit basically the cost to the provider in providing said benefit?
Hence why rail emplyees etc get to travel free; perhaps I misunderstood but I assumed direct finance costs were part of the cost to the employer!

My reading of the legislation is that a benefit only arises on the accommodation provided to the employee. In this case that is only half the property. The legislation allows for a 'just and reasonable' split.

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By jndavs
25th Sep 2015 12:31

Fair enough
Posted twice - not sure why!

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By Andy Collins
25th Sep 2015 13:34

Thank you for all of the responses. I think you've categorically answered my original question and I now have a fair idea of how to apply the formula. I am seeking further advice.

jndavs, I see what you're saying, but in this particular case, I think the legislation is quite specific and on re-reading the link that you provided, I think it's referring to the interest in a property (as opposed to interest on borrowings) and it relates to the 'cost of accommodation' part of the calculation and not the 'Annual value' part. If the standard value is £14,500 on a 2 bed house in the Midlands, then there're a lot of people in trouble!

The annoying thing is that this rental is incidental to the fact that we're the persons employer. He's paying full rent and it's not a benefit. We would have charged the same rent to a third party and therefore (logically) we shouldn't have any BIK calculations to do......God bless HMRC.

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