What does section 753 of ITTOIA 2005 do?

Section 753 exempts from United Kingdom income tax any interest paid to a student loan borrower on a refund of over-repaid loan amounts. Where a borrower has had too much collected—for example through PAYE—and receives a refund with compensating interest, that interest carries no income tax liability and does not need to be reported on a tax return.

What conditions must be met for the student loan interest exemption under section 753?

Two conditions must be satisfied. First, the interest must be paid to a person to whom a student loan has been made. Second, the interest must relate to an amount that was recovered from the borrower in respect of the loan and is now being repaid to them. Both conditions ensure the exemption covers only interest on genuine over-recovery refunds.

Which student loans qualify under section 753 of ITTOIA 2005?

The exemption applies to loans made under section 22 of the Teaching and Higher Education Act 1998 for England and Wales, section 73(f) of the Education (Scotland) Act 1980, or article 3 of the Education (Student Support) (Northern Ireland) Order 1998. These are the statutory provisions under which government-backed student loans are issued across the United Kingdom.

Does a borrower need to report the interest received on a student loan over-repayment refund?

No. Under section 753 of ITTOIA 2005, the interest paid alongside a refund of over-recovered student loan repayments is entirely exempt from income tax. The borrower does not need to report it or include it in a self-assessment tax return. The exemption is automatic once the qualifying conditions are met.

Income Tax (Trading and Other Income) Act 2005 section 753

Interest on repayment of student loan

Section 753 exempts from income tax any interest paid to a student loan borrower where the interest relates to a refund of an over-repayment of the loan.

Interest paid to a student loan borrower on a refund of over-repaid amounts is exempt from income tax.
The exemption applies only where the borrower has had an amount recovered from them in respect of the loan, and that amount is subsequently repaid to them.
A student loan for these purposes means a loan made under the relevant legislation for England and Wales, Scotland, or Northern Ireland.
The interest element accompanying the refund carries no income tax liability for the borrower.

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