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Living accommodation BIK for director

One man ltd co has bought a property for the director to live in as his home, BIK seems very low

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A one man limited company director got divorced so needed somewhere to live.  He couldn't get a personal mortgage, but his company had funds and could get a bank loan, so he bought a house through the limited company.  Obviously, there's a taxable benefit in kind on that.  I've gone through the HMRC 480 booklet, HMRC BIK worksheet etc and am coming out with a very low BIK value of around £2k whereas the open market rental value of the property is around £9k.  Am I missing something?

GRV is just a couple of hundred pounds, plus the excess of purchase price over £75k, (£150-75) is £75k, at 2.5%, comes to £1.9k.  Just seems way too low when rental value is £9k

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By Hugo Fair
03rd Apr 2021 21:51

Seems weird to me too (having never encountered this specific situation), but the 480 Tax Guide (Chapter 21) does seem to support your worked calcs!
I'll be fascinated to see any expert comment, as I agree that Rental value would be a far more logical basis for valuing the benefit.
Having said which, £9k p.a. does seem a very good return on £150k purchase - at least down here in London. Was additional expenditure by the company required on repairs and/or services?

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By doubletrouble
03rd Apr 2021 22:15

Should it not be the annual value of 9k plus the additional benefit of 1.9k minus any employee contributions

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Replying to doubletrouble:
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By Hugo Fair
04th Apr 2021 10:38

That might well seem more logical, but is not what the 480 Tax Guide (Chapter 21) says ... specifically in section 21.13 (Calculation of cash equivalent: accommodation costs over £75,000).
Apparently the cash equivalent of the first £75,000 is "The cash equivalent as calculated for property costing £75,000 or less (see paragraphs 21.9 and 21.11)" ... which is where "Annual value for this purpose is defined in the same way as the annual value which was formerly used for rating purposes" - the gross rating value.
And to this is added "the excess of the deemed cost of the property, including the cost of any improvements, over £75,000 multiplied by the ‘official rate’ of interest in force at the beginning of the tax year."
This does not purport to be a summary of every aspect on this topic, but seems to the basis of the OP's example - which appears to be supported by the guidance.

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Replying to Hugo Fair:
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By doubletrouble
04th Apr 2021 11:33

Never had to actually deal with this, but on going back to my ATT/CTA reference material from many years ago it sends me to ITEPA 2003, s.105 which does seem to agree with what you say.
It does seem too good to be true but that is what legislation says

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By the_drookit_dug
03rd Apr 2021 23:40

Sounds about right - GRV figures are normally pretty low, meaning a much lower benefit for employer owned property than rented property.

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Slim
By Slim
04th Apr 2021 00:22

Feels like a something which I should consider more often.

When you factor in the company’s interest deduction it doesn’t seem like a bad deal at all.

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Replying to Slim:
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By Hugo Fair
04th Apr 2021 10:41

I was always warned that when something seems too good to be true then it usually is ... but I agree with you, this seems like a perfectly valid way to save a lot of money?

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By Montrose
04th Apr 2021 19:11

There is a perverse logic in the benefit rules. HMRC want to avoid arguing about market value, so are happy to accept a formulaic method. Something similar applies in Spain with the use of cadastral values, which theoretically govern Spanish taxes on real estate and are almost always mush lower than the market value they supposedly reflect.

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