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Preferential Loan

Changes to specified rates on Preferential Loans

A recent change to the specified rates on Preferential Loans has been advised by Revenue.

What is a preferential loan?

A preferential loan is a loan from an employer to an employee at a rate that is more favourable to the individual than would be available should the individual get the loan from an alternative provider or if the individual were not an employee of the organisation granting the loan.    The difference between the interest charged by the employer and the rate specified by Revenue is a taxable Benefit In Kind (BIK).

What is the specified rate?

The specified rate of interest depends on the purpose of the loan.  If the loan has been granted for the purpose of purchasing, repairing, developing or improving an individual principle private residence and is similar to a loan that would qualify for tax relief on the same basis as mortgage interest, then the specified rate is now 4%, reduced from 5% in 2012.  In all other cases, the specified rate is 13.5%, up from 12.5% in 2012.

What is an ordinary preferential loan?

Where a loan is granted for purposes such as holidays, car purchase, etc, at a rate that is better than the Revenue specified rate of 13.5%,  then it is deemed to be an ordinary preferential loan and tax applies to the difference between the rate actually charged and the specified rate as a BIK.

Where an employee gets a loan at a reduced staff rate, when compared to the normal rate granted by the organisation to other individuals, the BIK is calculated on the difference between the specified rate set by Revenue and the reduced staff rate.

 

 

For More on Changes To Specified Rates on Preferential Loans Read:

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