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HMRC internal manual

Employment Income Manual

The benefits code: beneficial loans: examples

Example 1

A bank employee who earns at a rate of £25,000 a year is granted a £75,000 mortgage by the bank, which she uses to buy a property in the UK. She uses it as her only residence. Interest is charged at 3% per annum.

The loan is a not qualifying loan. Loans to purchase land are not eligible for relief under Section 353 ICTA 1988. See EIM26135 onwards

Example 2

A company employee earning £25,000 a year is also in business as a builder. He borrows £15,000 at 4% per annum from the company. He deposits the loan in his business bank account and seeks a deduction for the interest paid in computing the profits of the trade. Because his capital account is overdrawn it is agreed that only half the interest paid should be allowed for that purpose.

The loan is a qualifying loan because part of the interest in respect of it is deductible in computing the amount of the profits chargeable as Trading Income.

Note that the position would be the same if the loan was interest-free. However, if all of the interest paid (or, in the case of an interest-free loan, assumed to be paid) would be disallowed in computing the profits of the trade, the loan would not be a qualifying loan. See EIM26135 onwards.