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Beneficial loans

28 January 2014
Issue: 4437 / Categories: Forum & Feedback , Employees , Income Tax

An employee was loaned £250,000 by an employee benefit trust, ostensibly to purchase an investment property. On that basis, no P11D was prepared, but it has now come to light that £50,000 was retained as savings

We have a relatively new client whose previous accountant set up an employee benefit trust (EBT). The client took a loan from the EBT for £250 000 in 2009; however no P11D was prepared because he told his then accountants that it was for a qualifying purpose.

The loan has come to light because the EBT itself is under enquiry and HMRC have asked for documentation regarding the qualifying purpose which was to purchase an investment property.

However of the £250 000 only £200 000 was actually used for the property; and £50 000 went into the client’s bank account and is therefore non-qualifying. HMRC contend that because only part of the loan was qualifying the whole amount should be treated as a beneficial loan.

According to HMRC’s Employment Income Manual at EIM26137:

“Where only part of the interest qualifies for relief … since...

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