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yes, u can increase your housing allowance to cover your full rental.
no, but you cannot be totally taxed free.
e.g. your original pay = 40,000, your actual rental = 10,000
you can split yoru pay into 30,000 + 10,000 rental
then you will pay tax for 30,000 * 10% extra, = 33,000
the 10% extra on your base pay is like your rental in lieu.
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