HMRC increase beneficial loan rate to 3.75%

HMRC increase beneficial loan rate to 3.75%

HMRC has increased the ‘actual official rate’ for beneficial loan arrangements from 2.25% to 3.75% from 6 April 2025, the highest rate since 2014, when interest is calculated using the ‘precise method’.

However, the rate for loans repaid using the ‘averaging method’ for the 2025-26 tax year has not been confirmed, currently at only 2.25%, making these loans very favourable when compared to the Bank of England base rate of 4.5% and cost of commercial loans from banks.

This affects loans given to directors or employees who receive a benefit as a result of their employment when they, or any of their relatives, is given a cheap or interest-free loan.

HMRC guidance stressed that ‘it’s not necessary for the loan to be advantageous to the recipient for a chargeable benefit to arise. It’s sufficient if the cheap or interest-free loan is made by reason of the employment’.