Income Tax (Earnings and Pensions) Act 2003 section 399

Employment-related loans: interest treated as paid

Section 399 deals with the tax treatment of loans provided through employer-financed retirement benefits schemes where the loan is at a rate of interest below the official rate, and sets out how deemed interest payments are handled for tax purposes.

• Where a loan benefit counts as employment income or is taxed on a responsible person under a scheme, the individual or responsible person is treated as having paid interest equal to the cash equivalent of the loan
• The deemed interest is treated as accruing over the period the loan is outstanding in the tax year and as paid at the end of that period
• Because the deemed interest is treated as actually paid, the taxpayer can claim tax relief on it if genuine interest of that kind would have qualified for relief
• The deemed interest is not treated as income of the lender, nor as mortgage interest payable under deduction of tax