Income Tax (Earnings and Pensions) Act 2003 section 181

The official rate of interest

Section 181 defines the official rate of interest used to calculate taxable benefits on employment-related loans and allows for different rates to apply to certain foreign currency loans.

• The official rate of interest is the rate set by the Treasury under section 178 of the Finance Act 1989 and is used to assess the taxable benefit arising from employer-provided loans.
• A different official rate may be set for loans made in a foreign currency where the employee normally lives in the country of that currency and has actually lived there at some point during the six years up to the relevant tax year.
• The terms "normally lives" and "has actually lived there" are not specially defined in the legislation and carry their ordinary everyday meaning.
• The power to set a different rate for foreign currency loans does not restrict the Treasury's broader power under section 178(3) of the Finance Act 1989 to set different interest rates for different purposes generally.