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Income Tax (Earnings and Pensions) Act 2003

Section 399: Employment-related loans: interest treated as paid

1730.This section applies if the benefit provided is a loan at a rate of interest lower than the official rate.

1731.It derives from section 596C of ICTA.

1732.Tax is charged on the cash equivalent of the loan. This is calculated using the official interest rate. But the cash equivalent is not in fact interest. The section treats the taxpayer as having paid interest. The taxpayer can then claim tax relief on the deemed payment if real interest would have qualified for relief. The language in section 596C of ICTA is almost identical to that in paragraph 13 of Schedule 11 to ICTA, which deals with benefits paid on the termination of employment. That provision has been rewritten as section 416 of this Act.

1733.Subsection (4) prevents the notional interest being treated as income of the lender or as mortgage interest payable under deduction of tax in the hands of the payer.

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