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Changes to tax on living accommodation provided by employer

| Graeme Hills | 9 February 2021

Employer-provided accommodation is part and parcel of some employment contracts. In most cases, this provision of living accommodation to employees, directors, or a member of an employee or director’s family or household is a taxable benefit in kind.

However, HM Revenue & Customs (HMRC) have advised that from 6 April 2021, one of the exemptions from tax on living accommodation provided by an employer is set to be withdrawn. 

The exemption relates to ‘representative occupiers’. This applies to posts which existed before 6 April 1977 where the employee resides in living accommodation provided rent-free by the employer and is required to reside in that accommodation as part of their contract of employment. 

The employee should also occupy the accommodation based on their role, in that they are reasonably required to reside there in order to carry out the duties of their role more effectively.

For people or businesses that currently benefit from a tax exemption, it’s likely that their tax will increase in line with the new rules. However, it’s important to note that this won’t be an issue for everyone. An employer or employee may still benefit from the current exemptions if they are able to demonstrate that the accommodation is:

  • Necessary for the proper performance of duties;
  • Customarily provided for that class of employee for the better performance of their duties; or 
  • Required for the personal security of the employee (very rarely used).

The removal of one of the exemptions will not, therefore, impact everyone receiving living accommodation from their employer, but it will affect some employees. HMRC are expected to take a closer look at these arrangements in future now they have more reasons to challenge the treatment.

If you or your employees are in receipt of tax-exempt living accommodation from employment, it is worth reviewing this now to see if the circumstances still qualify under one of the above exemptions. 

Take the time to identify which employees are covered by the concession, if they’re covered by statutory exemptions, and consider if their contract terms need to be revised.

This is an area that is, at the very least, likely to result in more HMRC scrutiny, so for businesses that might be impacted by the change it’s essential to consider what this means for you now. 

The details surrounding these exemptions can be difficult to interpret, so contact our team if you need professional advice.


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