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HMRC internal manual

Employment Income Manual

The benefits code: beneficial loans: exemptions from charge: loans for fixed periods at fixed rates of interest

Section 177 ITEPA 2003 and Section 839 ICTA 1988

All claims to this exemption must be dealt with by an Inspector (see EIM26152). Experience shows that few cases meet the tests set out below.

There is no chargeable benefit in any year of assessment on a loan made to an employee if the loan:

  • is for a fixed period that cannot be changed and
  • is at a fixed rate of interest that cannot be changed during that period and
  • when the loan was first made, the interest paid on it in the year it was made was not less than interest calculated at the appropriate official rate(s) for that year.

The tests to be satisfied to qualify for this exemption are stringent. This is deliberate. It prevents tax avoidance. The loan must be for a specific period that cannot be varied under any circumstances and the rate of interest must be fixed and incapable of alteration.

Almost all loan agreements contain a clause permitting the lender to require the early repayment of the loan in the event of serious financial difficulties or similar exceptional circumstances. Such a clause means that, in certain circumstances, the period of the loan can be varied. It is thus not a loan for a fixed and invariable period. It cannot therefore qualify for exemption under this provision.

See EIM26153 for an example.