Are individuals required to pay tax on repayment interest?

Individuals are typically not required to pay tax on repayment interest because it is considered a return of capital rather than income. Repayment interest often relates to interest received by an individual for the return of a loan or capital, which does not generate taxable income in the same way that interest accrued on savings or investments would.

In these cases, the repayment generally represents a repayment of funds that had previously been lent out, and thus it does not represent a gain or profit that would be subject to taxation. The nature of repayment interest as a non-taxable event aligns with the principles of tax practice, which aim to distinguish between actual income and the return of previously invested capital.

The other options do not reflect these principles of taxation appropriately. For example, taxing repayment interest would not take into account its nature as a return of capital, and imposing conditions like a threshold amount or distinguishing between individuals and companies adds unnecessary complexity when the repayment itself does not constitute taxable income.