Income Tax (Earnings and Pensions) Act 2003 section 446S

Notional loan

Section 446S creates a deemed interest-free loan — known as a "notional loan" — when an employee acquires securities for less than market value, and subjects that loan to the standard employment-related loan benefit-in-kind rules.

• Where Chapter 3C applies to securities acquired at an undervalue, an interest-free notional loan is treated as having been made by the employer to the employee at the time of acquisition
• For as long as the employment continues, the notional loan is treated as an employment-related loan and the normal cheap loan benefit-in-kind rules apply to it
• The applicable rules cover the taxation of cheap loan benefits, de minimis thresholds, calculation methods, interest treatment, joint loan apportionment, and aggregation of loans by close companies to directors
• This notional loan treatment operates independently and is not overridden by the disguised remuneration provisions in section 554Z2(2)