Tax payments on an interest free train fare loan

[Mark H1211]

Hi there,

I'm trying to work out how much tax I will have to pay on an interest free train loan that my new company will pay for up front, and then take it out of my monthy pay.

The train loan is for £3,380 for the year. But how much tax will I also pay on top?

I need to identify whether my yearly gross figure will leave me worse off compared to what I'm currently taking home?

Hope someone can please help me?

Thanks,
Mark

[tax_schmax]

You won't pay extra tax, unless you get an extra benefit. i.e It's a loan not a gift. For example, if your company buys your travelcard, you would have this taxed. The interest free loan repayments are deducted from your net pay. You get the benefit of paying no interest and get the benefit of paying a reduced rate for travel compared to buying monthly tickets. You save no tax and suffer no penalty.

[Gnome]

Tax_schmax is correct in saying that a loan of £3,380 would not represent a taxable benefit. However, that is only because it does not break the £5,000 limit applying to loans to employees from employers.

If the season ticket exceeded loan exceeded £5,000 or if the employee has another loan or loans that, when added to the season ticket loan, causes the total to exceed £5,000 at any stage in the tax year, a taxable benefit will arise.

The benefit would be the difference between the interest that would have been payable at HMRC's "official" rate (currently 4%) and the amount of interest actually paid (in this case nil).

There are some exceptions where loans for certain purposes are exempt (usually involving the purchase of shares in a close company) but these do not include season ticket loans.

So keep an eye on those rail fare increases - it's getting to the stage where £5k won't buy you a ticket to the end of the road!

[Mark H1211]

Thanks for your comments. Both really helpful.

I understand my financial position a lot better now.

Regards