Discounted Loan Rates for Employees

As part of my employee benefits package, my employers have offered me a mortgage at a discounted rate. However, they have mentioned I will have to pay tax on this. Is this correct?

1st July 2011

Unfortunately it is correct. If an employer provides an employee with a subsidised loan, the employee will be assessed on the difference between the interest rate actually charged and what is known as the “official rate” of interest.  The employee will then pay income tax (20% if you are a basic rate taxpayer, 40% if you are a higher rate taxpayer and so-on) on the value of the benefit received each year. So it is still more beneficial to take up the low interest loan you have been offered.

Despite being charged tax on the benefit of having the low interest loan, you would not be liable to make any National Insurance Contributions, as your employer would be liable to pay these.

If you would like some personal tax advice or wish to discuss something else tax or accountancy related, please feel free to contact your local TaxAssist Accountant.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

Contact us today to make an appointment at your local office

Submit an enquiry