SE13320 - Termination payments and benefits: non-cash benefits other than living accommodation received after 6 April 1998: cash equivalent of beneficial loan treated as a payment of interest

Paragraph 13 Schedule 11 ICTA 1988

The “cash equivalent” of a beneficial loan is treated as a payment of interest. This means that it can be claimed as a relief.

There is a limit on the amount that is treated as paid for Section 148 ICTA 1988 purposes. The limit is the amount charged to tax after applying the £30,000 exemption described in SE13505

For example:

A termination settlement made on 1 July 1998 consists of cash £25,000 and a beneficial loan that is interest-free. Say the “cash equivalent” of the loan in 1998/99 is £4,000 ( SE26101 onwards).

The total of £29,000 is wholly covered by the £30,000 exemption (leaving £1,000 of the exemption carried forward to 99/2000: see SE13505).

As the amount charged to tax is nil, none of the “cash equivalent” is treated as a payment of interest. So no claim for interest relief can be made for 1998/99.

For 99/2000, say the “cash equivalent” of the loan is £7,500. The amount charged to tax is £6,500 (£7,500 “cash equivalent” less £1,000 exemption brought forward). So the amount treated as a payment of interest is limited to £6,500.

For 2000/01, say the “cash equivalent” of the loan is £5,750. The total chargeable under Section 148 ICTA 1988 is £5,750. There is no balance of exemption brought forward, so the whole £5,750 is treated as a payment of interest and available for relief.

When the figure for notional interest has been found, the same rules as in SE26270 apply to give relief for it.

Note: the release or writing off of a loan in connection with termination of employment is chargeable under S160 (5)(a) ICTA 1988 (see SE21746) and not Section 148 ICTA 1988.