The benefits code: beneficial loans: fully qualifying loans
Section 178 ITEPA 2003
As outlined in EIM26135, where the interest on a loan would have fully qualified for tax relief if the employee had actually paid the interest in question, that loan will not be treated as a taxable cheap loan under S175(1). Examples of this would include:-
- interest which would be eligible for relief under section 353 ICTA;
- interest which would be eligible for relief under section 383 ITA 2007;
- interest which would be deductible in computing the borrower’s profit’s from a UK trade, profession or vocation carried on by the borrower, or
- interest which would be deductible in computing the borrower’s profits from a Property Income business (income from land in the UK) carried on by the borrower.
Note that a loan to purchase land, such as a mortgage loan to buy a house, is not eligible for relief under Section 353 ICTA 1988.
An interest-free loan can be a qualifying loan. The issue is whether if interest had been paid any part of it would have been within any of the categories above.
Where the loan interest fully qualifies for relief under the provisions listed in section 178, there is nothing to be gained from bringing the loan into charge as an employment related, taxable cheap loan. Had the loan been taken out commercially, relief on any interest payable would have been given by the provisions detailed above. The relief in ITEPA keeps the treatment of the loan consistent with other parts of the Taxes Acts.
The decision on whether a loan is eligible for relief is a matter of fact. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Note: The provisions of section 178 ITEPA are wholly concerned with defining a loan that will be exempt from tax on the basis that the whole of the interest qualifies for tax relief. They apply separately from the provisions about “qualifying loans” and “non-qualifying loans” in s180(4) and (5) ITEPA, which relate to the application of the small loans threshold of £10,000 (£5,000 for 2013/14 and earlier tax years). See EIM26137 for more on qualifying and non-qualifying loans.