Income Tax (Earnings and Pensions) Act 2003 section 178

Exception for loans where interest qualifies for tax relief

Section 178 provides that an employment-related loan will not be treated as a taxable cheap loan for a particular tax year if the interest on that loan would qualify for tax relief or be deductible for tax purposes.

• A loan escapes the cheap loan benefit-in-kind charge if the full amount of interest on it qualifies for tax relief under the general interest relief provisions
• The exemption also applies where interest would have qualified for relief but was instead dealt with under the old mortgage interest relief at source (MIRAS) rules
• Loans are also exempt where the interest is deductible in computing taxable profits of a trade, profession or vocation carried on wholly or partly in the United Kingdom
• The same exemption applies where the interest is deductible in computing the taxable profits of a UK property business