Income Tax (Earnings and Pensions) Act 2003

Special exemption and relief for bridging loans

288 Limited exemption of certain bridging loans connected with employment moves

(1) No liability to income tax arises by virtue of Chapter 7 of Part 3 (taxable benefits: loans) in respect of a loan if—

(a) it is a removal benefit (see subsection (2)),

(b) the unused removal benefit exemption condition is met (see subsection (3)), and

(c) the loan is discharged before the end of the exempted loan discharge period (see subsection (4)).

(2) For the purposes of this section and section 289, a loan is a removal benefit if—

(a) it is raised by the employee in connection with a change of residence meeting the conditions in section 273 (conditions applicable to change of residence),

(b) the employee has an interest in the former residence and disposes of it in consequence of the change of residence,

(c) the employee acquires an interest in the new residence,

(d) the loan is raised wholly or partly because expenditure is incurred in connection with that acquisition before the proceeds of that disposal become available, and

(e) the loan is made before the limitation day.

(3) For the purposes of this section and section 289 the unused removal benefit exemption condition is that, in the case of the particular change of residence—

(a) the sum specified in section 287(1) (limit on exemption), exceeds

(b) the amount referred to in section 287(2) (the value of the exemption);

and for those purposes that excess is “the unused exemption”.

(4) In this section and section 289 “the exempted loan discharge period”, in relation to a loan, means the period of N days beginning with the day on which it is made, taking N as the number obtained by applying the following formula and, if that does not give a whole number, rounding up the result to the nearest whole number—

where—

• A is the unused exemption,

• B is the maximum amount of the loan outstanding in the period beginning with the time when the loan is made and ending with the limitation day, and

• C is the official rate of interest in force when the loan is made (expressed as a percentage).

(5) In this section—

(a) references to a loan raised by the employee include a loan raised by—

(i) one or more members of the employee’s family or household, or

(ii) the employee and one or more members of the employee’s family or household, and

(b) references to the employee having, disposing of or acquiring an interest in a residence include—

(i) one or more members of the employee’s family or household having, disposing of or acquiring such an interest, or

(ii) the employee and one or more members of the employee’s family or household having, disposing of or acquiring such an interest.

(6) The tax payable in respect of a loan for a tax year ending before the limitation day may be decided on the basis that the unused removal benefit exemption condition will not be met.

289 Relief for certain bridging loans not qualifying for exemption under section 288

(1) This subsection applies to a loan if—

(a) it is a removal benefit (see section 288(2)),

(b) the unused removal benefit exemption condition is met (see section 288(3)), and

(c) the loan is not discharged before the end of the exempted loan discharge period (see section 288(4)).

(2) A loan to which subsection (1) applies is to be treated for the purposes of Chapter 7 of Part 3 (taxable benefits: loans) as if it was made on the day after the last day of the exempted loan discharge period.

(3) Subsection (2) does not apply for the purposes of sections 176, 177, 180, 189 and 190.

(4) The tax payable in respect of a loan for a tax year ending before the limitation day may be decided on the basis that subsections (1) and (2) will not apply because the unused removal benefit exemption condition will not be met.