A plea for extreme clarity on income tax and the buyer rate

Suppose you've got 2 otherwise identical loan parts available to buy, each with a capital value of £100, and no accrued interest as of today.

One has an interest rate of 10%, and the other has an interest rate of 12%, but is offered at a 3% premium, which, today, makes the "buyer rate" equivalent to 10% [1]

For the first loan part, you'll pay £100 today, and will receive £17.65 of interest over the lifetime of the loan.
For the second loan part, you'll pay £103 today, and will receive £21.18 of interest over the lifetime of the loan. (for a £18.18 profit, which is 17.65% of your original £103 investment)

Before tax, in both cases, you're in the same relative position, having received an amount 17.65% more than your original investment, so for a non-taxpayer they're essentially equivalent (assuming the loan runs to term).

However, suppose you pay tax at 20%.

20% of £17.65 is £3.53, leaving you with a £14.12 gain net of tax (14.12% of the original £100, an annualised after tax rate around 8%)
20% of £21.18 is £4.24, leaving you with a £13.94 gain net of tax (13.54% of the original £103, an annualised after tax rate around 7.7%)

[1] (for purpose of the analysis I've tweaked the numbers representing the interest received so that this 10% buyer rate is "exact", and the ratio of interest received is directly proportional to the gross rates reported... in reality the true numbers will probably be slightly different. Due to the complications caused by the premium, this didn't end up with the nice round illustrative numbers I'd originally intended...)


Edit: and taking on board blender's following comment, I'll further clarify that the above is an illustration, and is neither intended as tax advice, nor would I be qualified to give such advice. It ignores many other important effects such as fees and risk of defaults, and assumes a specific interpretation of the tax rules that doesn't necessarily apply to your own personal circumstances, and even if it does this year, may not necessarily apply in the future tax years in which you may be receiving the income.