Income Tax (Earnings and Pensions) Act 2003 section 175

Benefit of taxable cheap loan treated as earnings

Section 175 sets out how the benefit of a low-interest or interest-free employment-related loan is taxed as earnings of the employee.

• An employment-related loan is a "taxable cheap loan" if it is outstanding during any part of a tax year while the employee holds the employment, and the interest paid is either nil or below the official rate, provided none of the statutory exceptions apply
• The taxable benefit (the cash equivalent) is the difference between the interest that would have been payable at the official rate and the interest the employee actually paid
• Where the loan is provided through optional remuneration arrangements and the salary or benefits given up exceeds the modified cash equivalent of the loan benefit, a higher "relevant amount" is taxed as earnings instead of the normal cash equivalent
• Each employment-related loan is assessed separately, subject to a £5,000 de minimis threshold below which no tax charge arises, and to special rules for replacement loans