Answers · UK 2025/26
What is a beneficial loan arrangement and how is it taxed?
A beneficial loan is an employer loan above £10,000 at below-market interest. HMRC charges income tax on the difference between the official rate (2.25% for 2026/27) and what you actually pay. The employer also pays Class 1A NI at 13.8% on the same benefit.
Full answer
A beneficial loan arises when an employer lends money to an employee at an interest rate below HMRC's official rate, or interest-free. It is treated as a taxable benefit in kind. **When does a beneficial loan arise?** The rules apply when: 1. The outstanding loan balance exceeds £10,000 at any point during the tax year (the £10,000 is an annual aggregate across all employer loans), AND 2. The interest charged is below HMRC's official rate of interest **Official rate of interest 2026/27** The official rate is 2.25% per annum for 2026/27. If you pay 0% interest on a £50,000 loan, the annual taxable benefit is £50,000 × 2.25% = £1,125. **Tax implications for the employee** The benefit value (the interest saving) is added to your taxable income. At 40% tax you would pay £450 in additional income tax on a £1,125 benefit. **Class 1A NI for the employer** The employer pays Class 1A National Insurance at 13.8% on the cash equivalent of the beneficial loan: £1,125 × 13.8% = £155.25 per year. This is reported on the P11D(b) return. **Reporting** The benefit is reported annually on a P11D form. Employers can choose to payroll the benefit instead from April 2026, removing the need for a P11D. **Exemptions** Loans below £10,000 in aggregate are fully exempt. Qualifying loans (e.g. to purchase a partnership share or qualifying shares) attract tax relief that offsets the benefit.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.