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Beneficial tax-exempt loans

16 May 2024

An employee can obtain a benefit when provided with an employment-related cheap or interest-free loan.

When an employer provides an employee with a cheap or interest-free loan, the employee benefits. The benefit equals the difference between any interest the employee pays and the commercial rate on a similar loan elsewhere. We call these loans beneficial loans.

Beneficial loans can be exempt in several scenarios. In these cases, employers may not need to report a benefit to HMRC or pay tax and National Insurance. The most common exemption applies to small loans. If an employee’s combined outstanding loans are less than £10,000 for the entire tax year, they qualify for this exemption.

The list also includes loans provided:

  • in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee);
  • to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out;
  • under identical terms and conditions to those offered to the general public (this mostly applies to commercial lenders);
  • that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief; or
  • using a director’s loan account as long as it is not overdrawn at any time during the tax year.
Source: HM Revenue & Customs Tue, 14 May 2024 00:00:00 +0100

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