EIM11432 - Living accommodation: definition of annual value

Sections 103 and 110 ITEPA 2003, Extra-Statutory Concession A56

The annual value of the accommodation needs to be known in order to calculate the value of the benefit (see EIM11431). Annual value is defined in Section 110(1) ITEPA 2003 as:

“the rent which might reasonably be expected to be obtained on a letting from year to year if -

  1. the tenant undertook to pay all taxes, rates and charges usually paid by a tenant, and
  2. the landlord undertook to bear the costs of the repairs and insurance and the other expenses (if any) necessary for maintaining the property in a state to command that rent”.

The amount of annual value for United Kingdom properties is based on the gross rating value (see EIM11434). This page explains why we use gross rating value as the measure for annual value.

Gross rating value of United Kingdom properties is taken as the equivalent of annual value for tax purposes because:

  • the definition in Section 837 ICTA 1988, which was the predecessor of Section 110 ITEPA 2003, is similar to that used in Section 19(b) General Rate Act 1967 and
  • its use avoids annual revaluations to arrive at current rental value.

This practice was not withdrawn on the repeal of the General Rate Act 1967 in the interests of continuity of treatment.

The higher values produced by the 1985 rating revaluation in Scotland are not adopted for tax purposes because using them would be unfair in view of the lower values produced by earlier revaluations elsewhere in the United Kingdom. This is dealt with in Extra-Statutory Concession A56.