Income and Corporation Taxes Act 1988

160 Beneficial loan arrangements

(1) Where in the case of a person employed in director’s or higher-paid employment there is outstanding for the whole or part of a year a loan (whether to the employee himself or a relative of his) of which the benefit is obtained by reason of his employment and—

(a) no interest is paid on the loan for that year; or

(b) the amount of interest paid on it for the year is less than interest at the official rate,

there is to be treated as emoluments of the employment, and accordingly chargeable to income tax under Schedule E, an amount equal to whatever is the cash equivalent of the benefit of the loan for that year.

(2) Where in the case of a person employed in director’s or higher-paid employment—

(a) there is in any year released or written off the whole or part of a loan (whether to the employee himself or a relative of his, and whether or not such a loan as is mentioned in subsection (1) above), and

(b) the benefit of that loan was obtained by reason of his employment,

then there is to be treated as emoluments of the employment, and accordingly chargeable to income tax under Schedule E, an amount equal to that which is released or written off.

(3) Where there was outstanding at any time when a person was in director’s or higher-paid employment the whole or part of a loan to him (or to a relative of his) the benefit of which was obtained by reason of his employment, and that director’s or higher-paid employment has terminated, whether on the employee ceasing to be employed or ceasing to be employed in director’s or higher-paid employment, subsection (2) above applies as if it had not terminated.

(4) Part I of Schedule 7 has effect as to what is meant by the benefit of a loan obtained by reason of a person’s employment; the cash equivalent of the benefit is to be ascertained in accordance with Part II of that Schedule; and Part III of that Schedule has effect for excluding from the operation of subsection (1) above loans on which interest is eligible for relief under subsection (1) of section 353 or which would be so eligible apart from subsection (2) of that section.

(5) In this section, sections 161 and 162 and Schedule 7—

(a) “loan” includes any form of credit;

(b) references to a loan include references to any other loan applied directly or indirectly towards the replacement of the first-mentioned loan;

(c) references to making a loan include arranging, guaranteeing or in any way facilitating a loan (related expressions being construed accordingly); and

(d) references to the official rate of interest are to the rate prescribed from time to time by the Treasury by order.

(6) For the purposes of this section and section 161, a person is a relative of another person if he or she is—

(a) the spouse of that other; or

(b) a parent or remoter forebear, child or remoter issue, or brother or sister of that other or of the spouse of that other; or

(c) the spouse of a person falling within paragraph (b) above.

(7) Subject to section 161, this section applies to loans whether made before or after this Act is passed.