PIM2074 - Deductions: main types of expense: cash back on loans

A customer may benefit from a ‘cash-back’ offer when they take out a loan. There are many variations and the tax treatment depends on the precise terms of the cash-back scheme. The impact may go beyond the expenses deductions but we have included this subject here for convenience. Broadly, the position on three main aspects is:

• Interest relief: where the scheme provides for a discount on the interest due on the loan, interest relief is limited to the net amount paid.
• Capital Gains Tax (CGT): the cash-back is not chargeable to CGT where it is paid by the lender in return for the customer taking out the mortgage, or other loan, with them.
• Income Tax (IT): where the scheme provides for a one-off payment there is unlikely to be any liability to IT; if more than one payment is involved, there is likely to be an ‘annual payment’ taxable as miscellaneous income.