A manse: a benefit, a blessing or a tax liability?

The background

Because of the history of the church in the UK, we have grown used to the concept of church leaders, ministers and pastors being provided with manses (or vicarages) as part of the role.

We are also used to them being ‘free of tax’, so there is no taxation on the church or the individual (in other words, it is excepted from the normal taxation on an employee being provided with a benefit) because it is being provided ‘for the better performance of the duties’.

Where a minister is provided with housing for the better performance of the duties of the office and it is customary for living accommodation to be provided for such ministers (usually referred to as ‘job-related accommodation’), the value of the accommodation provided is not taxable. This applies to beneficed clergy and to other ministers with pastoral responsibilities where residence in a particular place is required to do their role well.

This privilege has been a long-established practice and is very valuable in many situations. However, with the changing face of housing and of church in the UK, the traditional situation of an employed minister in a church-owned manse is not always a likely solution.

There are three questions we see being raised which need to be considered by churches.

1. Is the role one that meets the definition of ‘a minister’?
2. Does the ownership of the property meet the required criteria?
3. What expenses of the house can be paid free of tax?

The nature of the role

The exemption from the normal taxation rules is based on the role being that of a ‘minister of religion’. Not every church worker would be eligible. They don’t have to be ordained clergy but they should have pastoral responsibilities equivalent to that of ministers. Administrators and youth or community workers are not ‘in’ unless their roles clearly have the major element of pastoral responsibilities. 

The ownership of the property

It is not the house itself that is the question, but the legal title (or ‘interest’) that the church has in it that is important. The church should either own it, or, if it is leased, be the tenant. It is not enough just to pay the rent (for example,  if the tenant is the minister themselves and the church pays or reimburses the rent – this would not fall into the exception). If this were the situation, the rent paid is effectively extra salary and taxable through payroll in the normal way.

The same applies if, instead of rent being paid, the church pays the minister a ‘housing allowance’. This is just another element of salary and would also be taxable in the normal way.

The expenses of the house

Assuming the house does fall within the exception, then normally the repairs and insurance for the fabric of the building, as well as the council tax and water rates would fall to the church. However, if a church bears the cost of ongoing internal decoration or repairs, replacement of carpets and similar, then you cannot presume these are all exempt. Similarly gas and electric bills would normally only have an element (the part required for the ‘business activity’) which could be funded by the church without taxation.

Conclusion

These are only three of the aspects we see where churches could misunderstand the scope of the exceptions, and it is not intended as a general guide to taxation of manses for ministers.

The ability to provide a manse to your church minister to allow them to undertake their role is a fantastic blessing and benefit to many, so please do not allow this to become an unexpected tax liability by jumping in without understanding the important issues.

The advice is: think about these things first and do not presume they are automatically exempt from tax.

May this be a blessing and not a tax liability!

PS: There are extremely useful guides on the taxation of ministers which cover this type of issue. There is one produced by the Baptist Union for their ministers, which is very helpful for any church considering this for the first time.

The Baptist Union of Great Britain : Leaflet X03: Taxation Guidelines for Churches and Ministers