The beneficial loan rules set up a special category of loans called "qualifying loans". The distinction between qualifying and non-qualifying loans is relevant in relation to:

• Exemption for small loans

Where exemption is not due but would have been but would have been but for the existence of one or more qualifying loans, only the qualifying loans are taken into account for the purposes of the beneficial loans rules.

• Aggregation and non-aggregation of loans

In 1996-1997, Ms Smith had three interest-free loans from her employer:

No tax is chargeable if the total balance outstanding on all beneficial loans does not exceed £5,000 at any time in the year of assessment in question. Since the maximum total balance outstanding in the year exceeds £5,000, exemption is not due. However, apart from the qualifying loan, the maximum total balance outstanding in the year would be £5,000. Since this does not exceed the £5,000 limit, exemption is due for the non-qualifying loans. The qualifying loan will be charged as if it were the only beneficial loan.

A close company has for some years advanced funds to a director at a 3% interest rate. The balance on the loan account on 5 April preceding the year of assessment was £29,000. The director repaid £1,000 on 30 June in the year of assessment so that the balance at the end of that year was £28,000. Part of the loan balance was a loan of £3,000 made in the preceding year of assessment to help him buy a car which he needed for his job. £20,000 was a loan to buy his only residence. Of the remainder of the loan, £2,000 was used to buy a season ticket and the other £4,000 outstanding at the beginning of the year represented the balance of a loan to pay for a holiday. Of the total repayment amount of £1,000, £200 was set against the car loan, £500 against the house loan, £200 against the season ticket loan, and the other £100 against the holiday loan.

All the loans are between the same borrower and lender, and all require a cash equivalent to be calculated. The company elects that the loans should be treated as a single loan, where possible. Consequently, the season ticket loan and the holiday loan, which are non-qualifying, are aggregated. So for the purposes of calculating the total chargeable benefit, there are three loans: