Finance Act, 1979

Restriction of relief in respect of interest paid on certain loans at a reduced rate.

10.—(1) (a) In this section—

“employee”, in relation to an employer, means a person employed by the said employer including, in a case where the employer is a body corporate, a director, within the meaning of Chapter III of Part V of the Income Tax Act, 1967 , of the body corporate;

“employer”, in relation to an individual, means—

(i) a person of whom the individual or his spouse is an employee,

(ii) a person of whom the individual becomes an employee subsequent to the making of a loan by the person to the individual and while any part of the loan, or of another loan replacing it, is outstanding, and

(iii) a person connected with a person referred to in paragraph (i) or (ii);

“loan” includes any form of credit, and references to a loan include references to any other loan applied directly towards the replacement of another loan; “preferential loan” means a loan made to an individual or his spouse by a person who in relation to the individual is an employer save that a loan shall not be a preferential loan if it was made before the 6th day of April, 1979, and at the time the loan was made, the making of loans to persons, other than employees, for a stated term of years at a rate of interest which does not vary for the duration of the loans, formed part of the trade of the said employer and interest is payable in respect of it at the rate of interest at which the employer in the course of his trade, at the time the loan was made, made loans at arm's length to persons other than employees for the purpose of purchasing dwelling-houses for occupation by the borrowers as residences;

“the specified rate” means the rate of 12 per cent. per annum.

(b) For the purposes of this section, a person shall be regarded as connected with another if that person would be so regarded for the purposes of section 8 of the Finance Act, 1978 .

(c) In this section a reference to a loan being made by a person includes a reference to a person assuming the rights and liabilities of the person who originally made the loan and to a person arranging, guaranteeing or in any way facilitating a loan or the continuation of a loan already in existence.

(2) Where, for any year of assessment, being the year 1979-80 or any subsequent year of assessment, relief is claimed by an individual by virtue of one or more of the following provisions, that is to say, section 496 of the Income Tax Act, 1967 , section 76 (1) (c) of the said Act or paragraph 1 (2) of Part III of Schedule 6 to that Act, relief shall not be given for that year of assessment in respect of the part, if any, of the aggregate amount of interest in respect of which relief is so claimed on a preferential loan or loans that exceeds the amount determined by the formula—

(A − B)

×

C

_____

D + E

where—

A is £2,400,

B is the aggregate amount of interest, other than interest on a preferential loan or loans, in respect of which the individual is entitled to relief for the year of assessment under any one or more of the aforementioned provisions,

C is the aggregate amount of interest on a preferential loan or loans in respect of which relief is claimed by the individual for the year of assessment under any one or more of the aforementioned provisions,

D is the amount of the interest which would have been payable on the preferential loan or loans for the period or periods for which the interest included in C was paid or payable, as the case may be, if for any rate or rates at which interest was paid or payable as the case may be for the said period or periods there were substituted the specified rate, and

E is the amount of interest which would have been payable for the year of assessment on any preferential loan or loans in respect of which no interest is payable if interest were payable on the said loan or loans at the specified rate.

(3) Section 178 (1) of the Income Tax Act, 1967 , is hereby amended by the insertion after paragraph (a) of the following paragraph :

“(aa) particulars of any preferential loan, within the meaning of section 10 of the Finance Act, 1979, made by him;”.