Income Tax (Earnings and Pensions) Act 2003 section 416

Notional interest treated as paid if amount charged for beneficial loan

Section 416 deals with the tax relief available when a beneficial loan forms part of a termination or retirement payment that is taxed as employment income, by treating notional interest as having been paid on that loan.

• When a taxable termination payment includes the benefit of a loan, the recipient is treated as having paid interest on that loan equal to the lower of the loan's cash equivalent and the taxable amount.
• The notional interest is treated as accruing over the period in the tax year during which the loan remains outstanding, and as being paid at the end of that period.
• This notional interest is not treated as income of the lender, so it does not create a tax liability for whoever made the loan.
• The notional interest is also not treated as mortgage interest payable under deduction of tax, preventing it from being handled as real interest paid under the old MIRAS-type provisions.