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HMRC internal manual

Property Income Manual

Deductions: General rules: Main types of expenses: Cash back on loans

A taxpayer may benefit from a ‘cash-back’ offer when they take out a loan. There are many variations and the tax treatment depends on the precise terms of the cash-back scheme. The impact may go beyond the expenses deductions but we have included this subject here for convenience. Broadly, the position on three main aspects is:

  • CGT: the cash-back is not chargeable to CGT where it is paid by the lender in return for the taxpayer taking out the mortgage, or other loan, with them,
  • IT: where the scheme provides for a one-off payment there is unlikely to be any liability to IT; if more than one payment is involved, there is likely to be an ‘annual payment’ taxable under Schedule D,
  • interest relief: where the scheme provides for a discount on the interest due on the loan, interest relief is limited to the net amount paid.