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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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IM26114 The benefits code: beneficial loans: meaning of by reason of employment: exception where loan made by an individual

Section 174(5)(a) ITEPA 2003There is an exception to the rule at

EIM26113 that the benefit of a loan is obtained by reason of a person’s employment if it is made by his or her employer or prospective employer.

No charge arises if it is shown that a loan has been made, by an employer who is an individual, in the normal course of his or her domestic, family or personal relationships.

An example of when the exception applies would be where an individual employs his daughter in the business and makes a loan to her to buy furniture when she is getting married. The parent/daughter relationship would normally be the reason for the loan being made. (It probably would not be if the loan was shown in the parent’s business accounts as a business asset).

In cases where this exemption is claimed the Inspector dealing with the lender’s accounts should be consulted before the position is finalised.

See EIM26115 where a loan is made by an individual with a material interest in a close company.