Paying interest over the official rate

Does it have any effect?

Didn't find your answer?

Say someone has a £10,000 loan over the 2019/20 tax year.  They pay no interest, BiK of £250.  They pay £100, BiK of £150.  They pay £250, BiK nil.

Say they pay £300, obviously BiK nil, but is the £50 'lost'?  Presumably ITA 07 s383 isn't in play, even if the money was used to, say, buy shares, as it's not a third party loan, and the loan has to be at a reasonable commercial rate, which I imagine in the case of a loan to an employee HMRC would say is the ORoI!

Replies (4)

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Psycho
By Wilson Philips
07th Jan 2021 11:17

If the loan is used for a qualifying purpose I would claim the interest paid in full - including in your example the £50. 3% seems to me to be a reasonable commercial rate for an unsecured loan.

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Replying to Wilson Philips:
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By ImNotSureBut
07th Jan 2021 13:58

Wilson Philips wrote:

If the loan is used for a qualifying purpose I would claim the interest paid in full - including in your example the £50. 3% seems to me to be a reasonable commercial rate for an unsecured loan.

Thanks, I have since read some AW topics that have made me realise the loan can be from anyone, I am surprised to read that :)

So if it was a qualifying purpose, the full £300 in my example, fair enough, thanks!

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Replying to ImNotSureBut:
Psycho
By Wilson Philips
07th Jan 2021 14:26

Well, if you think about it, if interest was charged at a non-commercial rate the loan is likely to involve a connected party. The legislation therefore implicitly allows relief for such loans providing that you're not stupid with the interest rate.

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Replying to Wilson Philips:
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By Tax Dragon
07th Jan 2021 14:36

And, FWIW, if you are wrong then s178 doesn't make a whole lot of sense.

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