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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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The benefits code: beneficial loans: exemptions from charge: no benefit derived from a loan to a relative

Section 174(5)(b) and (6) ITEPA 2003 There is no chargeable benefit if an employee within the benefits code (see

EIM20006) shows that he or she got no benefit from a loan made to a relative. The benefit referred to is not confined to monetary advantage. Anything that is beneficial to the employee concerned, such as a feeling of well being because (or the fulfilment of a wish that) a relative is assisted with a cheap loan, is a benefit.

This exemption protects an employee from a charge where there is a genuine arms length transaction between the employer and the relative. It also applies where such a debt is released or written off (see EIM21743).

Claims to this exemption should be examined by an Inspector.

The exemption will only rarely apply in a case where a company controlled by its directors lends money cheaply to a relative of a director. This is because the making of a loan by the company on uncommercial terms will reduce the value of the company’s shares and the directors will only do this if there is a countervailing benefit to themselves.