Income Tax (Earnings and Pensions) Act 2003 section 186

Replacement loans

Section 186 deals with situations where an employment-related loan is replaced by another loan, and ensures that the replacement cannot be used to manipulate the tax calculation by treating all such loans as one continuous loan.

• Where an employment-related loan is replaced by another employment-related loan, or by a non-employment-related loan that is itself replaced by an employment-related loan within the same tax year or within 40 days after the year end, the rules apply
• All replacement loans are treated as if they were the same loan as the original for the purpose of calculating the taxable benefit using the normal averaging method
• Interest actually paid on both the original and any replacement loans during the tax year is aggregated when working out the cash equivalent of the loan benefit
• A replacement loan qualifies if it relates to the same or different employment with the original employer, or with a connected employer