Income and Corporation Taxes Act 1988

160 Beneficial loan arrangements.U.K.

(1)M1Where in the case of a person employed in [F1employment to which this Chapter applies] there is outstanding for the whole or part of a year a loan (whether to the employee himself or a relative of his) of which the benefit is obtained by reason of his employment and—

(a)no interest is paid on the loan for that year; or

(b)the amount of interest paid on it for the year is less than interest at the official rate,

[F2an amount equal to whatever is the cash equivalent of the benefit of the loan for that year shall, subject to the provisions of this Chapter, be treated as emoluments of the employment, and accordingly chargeable to tax under Schedule E; and where that amount is so treated, the employee is to be treated as having paid interest on the loan in that year of the same amount.

(1A)Interest treated as paid by virtue of subsection (1) above—

(a)shall be treated as paid for all the purposes of the Tax Acts (other than this Chapter, including Schedule 7), but shall not be treated for any purpose as income of the person making the loan or be treated as relevant loan interest to which section 369 applies, and

(b)shall be treated as accruing during, and paid by the employee at the end of, the year or, if different, the period in the year during which he is employed in employment to which this Chapter applies and the loan is outstanding.

[F3(1B)Where, in relation to any year—

(a)there are loans between the same lender and borrower which are aggregable with each other,

(b)the lender elects, by notice given to the inspector, for aggregation to apply in the case of that borrower, and

(c)that notice is given before the end of the period of 92 days after the end of that year,

all the loans between that lender and that borrower which are aggregable with each other shall be treated for the purposes of subsections (1) and (1A) above and Part II of Schedule 7 as a single loan.

(1BA)For the purposes of subsection (1B) above loans are aggregable with each other for any year where—

(a)in the case of each of the loans, there is a time in that year, while the loan is outstanding as to any amount, when the lender is a close company and the borrower a director of that company;

(b)the benefit of each of the loans is obtained by reason of the borrower’s employment;

(c)in the case of each of the loans, there is no time in that year when a rate of interest is applied to the loan which is equal to or more than whatever is the official rate at that time;

(d)the loans are loans made in the same currency; and

(e)none of the loans is a qualifying loan.]

(1C)In this section and section 161 “qualifying loan” means any loan made to any person where, assuming interest is being paid on the loan (whether or not it is in fact being paid), the whole or any part of the interest—

(a)is eligible for relief under section 353 or would be so eligible but for subsection (2) of that section F4. . . , or

(b)is deductible in computing the amount of the [F5profits] to be charged under Case I or II of Schedule D in respect of a trade, profession or vocation carried on by him.]

(2)M2Where in the case of a person employed in [F1employment to which this chapter applies]—

(a)there is in any year released or written off the whole or part of a loan (whether to the employee himself or a relative of his, and whether or not such a loan as is mentioned in subsection (1) above), and

(b)the benefit of that loan was obtained by reason of his employment,

then there is to be treated as emoluments of the employment, and accordingly chargeable to income tax under Schedule E, an amount equal to that which is released or written off.

[F6(3)Where—

(a)there was outstanding, at any time when a person was in employment to which this Chapter applies, the whole or part of a loan to him (or a relative of his) the benefit of which was obtained by reason of his employment, and

(b)that employment has terminated or ceased to be employment to which this Chapter applies,

subsection (2) above applies as if the employment had not terminated or, as the case may be, had not ceased to be employment to which this Chapter applies.]

[F7(3A)Where subsection (3) above applies, a loan which—

(a)is applied directly or indirectly to the replacement of any such loan as is mentioned in paragraph (a) of that subsection, and

(b)would, if the employment referred to in that subsection had not terminated or, as the case may be, ceased to be employment to which this Chapter applies, have been a loan the benefit of which was obtained by reason of that employment,

shall, unless it is a loan the benefit of which was obtained by reason of other employment, be treated as a loan the benefit of which was obtained by reason of that employment.]

(4)M3Part I of Schedule 7 has effect as to what is meant by the benefit of a loan obtained by reason of a person’s employment; the cash equivalent of the benefit is to be ascertained in accordance with Part II of that Schedule; F8. . .

[F9(4A)Where an assessment for any year in respect of a loan has been made or determined on the footing that the whole or part of the interest payable on the loan for that year was not in fact paid, but it is subsequently paid, then, on a claim in that behalf, the cash equivalent for that year shall be recalculated so as to take that payment into account and the assessment shall be adjusted accordingly.]

(5)M4In this section, sections 161 and 162 and Schedule 7—

(a)“loan” includes any form of credit;

(b)F10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)references to making a loan include arranging, guaranteeing or in any way facilitating a loan (related expressions being construed accordingly); and

(d)references to the official rate of interest are to the [F11rate applicable under section 178 of the Finance Act 1989.]

[F12and, without prejudice to the generality of section 178 of the Finance Act 1989, regulations under that section may make different provision in relation to a loan outstanding for the whole or part of a year if—

(i)it was made in the currency of a country or territory outside the United Kingdom,

(ii)the benefit of the loan is obtained by reason of the employment of a person who normally lives in that country or territory, and

(iii)that person has lived in that country or territory at some time in the period of six years ending with that year]

(6)For the purposes of this section and section 161, a person is a relative of another person if he or she is—

(a)the spouse of that other; or

(b)a parent or remoter forebear, child or remoter issue, or brother or sister of that other or of the spouse of that other; or

(c)the spouse of a person falling within paragraph (b) above.

(7)Subject to section 161, this section applies to loans whether made before or after this Act is passed.