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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a forgivable loan from my employer - I received it

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I have a forgivable loan from my employer - I received it when I joined the firm. The deal was that it would be forgiven over a 4 year period - 1/4, 1/4, 1/4, 1/4 on each anniversary of me joining the company. I was told that I would be responsible for paying back the tax on the loan and they also explained the fact that HMRC consider a loan to be a benefit in kind and work on the basis that you are making 3% on your money and you have to pay the tax on this amount. I wanted to ask if there is any way of appealing on this 3% - I think its ridiculous - find me a place that where you have risk free guaranteed return of 3% - impossible! In this era of almost zero interest rates this rule does not fit. Please give me your thoughts...
Assistant: Thank you. Can you provide any more details to help us find you the right Expert?
Customer: there is a lot of detail there - its effectively a tax question about forgivable loans.


Your employer explained it incorrectly. The fact is that you have an interest free loan which you won't get from a commercial lender. That is why you have a taxable benefit in kind at 3% on which you will pay a maximum of 20% tax if you are a basic rate taxpayer, 40% if you are a higher rate taxpayer and 45% if you are an additional rate taxpayer. It's no different to a company car benefit. You get a nice car to drive with no running costs except fuel and you don't have to use your own savings or borrow at commercial rates to buy your own car, hence the taxable benefit in kind.

I hope this helps but let me know if you have any further questions.

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Customer: replied 1 year ago.
The point is the 3% is out dated and does not assume we are in a zero interest environment - this 3% has not changed over the years as interest rates have come down. In reality I could get a commercial loan for less than 3% IR.
Customer: replied 1 year ago.

Take a look at the official rate of interest history here. Its not based on deposit rates. It's based on lending rates.

Customer: replied 1 year ago.
Thank you

Thanks for accepting my answer.