In broad terms, this concession, which relates to posts that existed before 6 April 1977, and successors to those posts, provides relief from a taxable benefit in kind for employees required to live in the property as a condition of their employment.
Employers providing tax-free accommodation under this concession will therefore need to consider whether the provision of that accommodation will become a taxable benefit from April 2021, or whether it will continue to qualify as a tax-free benefit under one of the statutory exemptions.
The statutory exemptions from a taxable benefit in kind are where the employer-provided living accommodation is either:
- Necessary for the proper performance of duties;
- Customarily provided for the better performance of duties; or
- Required for the personal security of the employee.
‘Customarily provided’ means it is normal practice to provide living accommodation to employees of that class. It is not considered to be customary where less than a half of employees of that class are provided with living accommodation. HMRC has agreed that many farm workers should be covered by the ‘necessary for the proper performance of duties’ exemption, but there could be issues for other positions.
“The withdrawal of this concession will affect many of our rural clients. Tax-free living accommodation is regularly provided to resident agents, chief executives, estate and farm managers and workers, gamekeepers and property maintenance staff, amongst others, and often continues to be provided to former employees in their retirement. HMRC is being actively lobbied to ensure that retired employees are not disadvantaged by the change.
“It will unlikely be sufficient to simply write conditions into contracts of employment around asset security or removal of heritage property in an emergency. There will need to be real evidence of proper or better performance of duties, where those exemptions are claimed.
“Where living accommodation doesn’t meet one of the statutory exemptions, its provision will be a taxable P11D benefit and will be subject to income tax for the employee and class 1A national insurance for the employer.
“Undoubtedly, provision of tax-free living accommodation to employees and former employees will come under much greater scrutiny by HMRC when the rules change in April next year. To avoid tax implications for them and their employees, employers will need to have a robust argument as to why provision of the accommodation is exempt from tax.”