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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Termination payments and benefits: non-cash benefits other than living accommodation received after 6 April 1998: cash equivalent of beneficial loan treated as a payment of interest

Section 416 ITEPA 2003The cash equivalent of a beneficial loan is treated as a payment of interest. This means that it can be claimed as a relief.

However, there is a limit on the amount that is treated as paid for Section 401 ITEPA 2003 purposes. The limit is the amount charged to tax after applying the £30,000 threshold described in EIM13505.
### ExampleA termination settlement made on 1 July 2003 consists of cash £25,000 and a beneficial loan that is interest-free. Assume that the cash equivalent of the loan in 2003/04 is £4,000 (

EIM26101 onwards).

The total of £29,000 is wholly covered by the £30,000 threshold (leaving £1,000 carried forward, see EIM13505).

As the amount charged to tax is nil, none of the cash equivalent is treated as a payment of interest. So no claim for interest relief can be made for 2003/04.

For 2004/05, assume that the cash equivalent of the loan is £7,500. The amount charged to tax is £6,500 (£7,500 cash equivalent less £1,000 balance of threshold brought forward). So the amount treated as a payment of interest is limited to £6,500.

For 2005/06, assume that the cash equivalent of the loan is £5,750. The total chargeable under Section 401 ITEPA 2003 is £5,750. There is no balance of threshold brought forward, so the whole £5,750 is treated as a payment of interest and available for relief.

When the figure for notional interest has been found, the same rules as in EIM26270 apply to give relief for it.

Note: the release or writing off of a loan in connection with termination of employment is chargeable under Section 188 ITEPA 2003 (see EIM21746) and not Section 401 ITEPA 2003.