EIM21736 - Particular benefits - housing for key workers: interest free and low interest loans: equity loans: shared ownership
Home ownership schemes
Interest free and low interest loans
Loans made on beneficial terms to an employee are taxable benefits if they are arranged, guaranteed or facilitated in any way by the employer - see EIM26100.
No tax charge arises on loans where -
- an interest free or low interest loan (including equity loans) of any amount is advanced to an employee by someone (e.g. a Registered Social Landlord) with no connection with the employer, and it is not arranged, guaranteed or facilitated by the employer; or
- an interest free or low interest loan (including equity loans) not exceeding £5,000 (or if there is more than one loan, the total outstanding amount does not exceed £5,000) is advanced or arranged by the employer.
Situations where an employer is regarded as facilitating a loan will depend on precise circumstances. To avoid an employer connection it is necessary for independent third parties to select applicants for key worker housing and to run the scheme independently of the employer whose employees stand to benefit. If an employer nominates its employees to receive assistance or has a say in the selection of individual applicants for assistance, the employer has facilitated the loan and tax would be chargeable.
Employers would not be regarded as facilitating a loan where -
- a scheme was run for a particular occupation group (e.g. teachers or nurses) in a particular area;
- employers provided information to scheme administrators about the skills group in which they faced special shortages (e.g. mathematics teachers) and this information was used to prioritise applications;
- employers provided information to their employees about the scheme, and provided any information required by scheme administrators to verify the information in applications from key workers, but had no influence on the selection of individual applicants or the granting of loans.
Under KWL a loan up to a limit of £50,000 (some London teachers may be eligible for loans up to £100,000) may be made as an equity loan. On this type of loan no repayments are due until the property secured on the loan is sold or the key worker stops being a key worker. At that time the key worker must repay a percentage of the property’s value equivalent to the percentage of the purchase price covered by the equity loan.
For example, if a key worker purchased a home for £160,000 with the assistance of a £40,000 equity loan under KWL, the loan represented 25% of the purchase price. When the property is sold, the key worker must repay 25% of the sale proceeds to KWL.
If a key worker is helped to buy a share (for example, 60%) of a property, the remaining share of the property may be owned by a registered social landlord, to whom the key worker pays a reduced rent (EIM11427). The key worker may increase their ownership share in future, when they can afford to do so, or even buy it outright.
When the key worker sells the property, or ceases to be a key worker, the percentage of the proceeds that is received by the key worker depends on the share of the property owned by the key worker.
For more information on shared ownership and rented housing options in the Key Worker scheme see EIM11425.