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Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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376 Application for postponement of tax pending appeal

No application may be made under section 55(3) or (4) of TMA 1970 (application for postponement of payment of tax pending appeal) on the ground that an individual is eligible for CITR unless a claim for the CITR has been duly made by the individual under this Part.

377 Identification of securities or shares on a disposal

(1) This section applies for the purpose of identifying the securities or shares disposed of in any case where--

(a) the investor disposes of part of a holding of securities or shares ("the holding"), and

(b) the holding includes securities or shares to which CITR is attributable in respect of one or more tax years that have been held continuously by the investor from the time they were issued until the disposal.

(2) Any disposal by the investor of securities or shares included in the holding which have been acquired by the investor on different days is treated as relating to those acquired on an earlier day rather than to those acquired on a later day.

(3) If there is a disposal by the investor of securities or shares included in the holding which have been acquired by the investor on the same day, any of those securities or shares--

(a) to which CITR is attributable, and

(b) which have been held by the investor continuously from the time they were issued until the time of disposal,

are treated as disposed of after any other securities or shares included in the holding which were acquired by the investor on that day.

(4) For the purposes of this section a holding of securities is any number of securities of a company which--

(a) carry the same rights,

(b) were issued under the same terms, and

(c) are held by the investor in the same capacity.

It does not matter for this purpose that the number of the securities grows or diminishes as securities carrying those rights and issued under those terms are acquired or disposed of.

(5) For the purposes of this section a holding of shares is any number of shares in a company which--

(a) are of the same class, and

(b) are held by the investor in the same capacity.

It does not matter for this purpose that the number of the shares grows or diminishes as shares of that class are acquired or disposed of.

(6) In a case to which section 127 of TCGA 1992 (equation of original shares and new holding) applies, shares comprised in the new holding are to be treated for the purposes of subsections (2) and (3) as acquired when the original shares were acquired.

(7) In subsection (6)--

(a) the reference to section 127 of TCGA 1992 includes a reference to that section as it is applied by virtue of any enactment relating to chargeable gains, and

(b) "original shares" and "new holding" have the same meaning as in section 127 of TCGA 1992 or (as the case may be) that section as applied by virtue of the enactment in question.



Definitions

378 Meaning of "issue of securities or shares"

(1) In this Part--

(a) references (however expressed) to an issue of securities of any body are to such securities of that body as carry the same rights and are issued under the same terms and on the same day, and

(b) references (however expressed) to an issue of shares in any body are to such shares in that body as are of the same class and issued on the same day.

(2) In this Part references (however expressed) to an issue of securities of or shares in a body to an individual are to such of the securities or shares in an issue of securities of or shares in that body as are issued to that individual in one capacity.

379 Meaning of "disposal"

(1) Subject to subsection (2), in this Part "disposal" is read in accordance with TCGA 1992, and related expressions are read accordingly.

(2) An investor is treated as disposing of any securities or shares which but for section 151BC(1) of TCGA 1992 the investor--

(a) would be treated as exchanging for other securities or shares by virtue of section 136 of that Act, or

(b) would be so treated but for section 137(1) of that Act (which restricts section 136 to genuine reconstructions).

380 Construction of references to being "held continuously"

(1) This section applies if for the purposes of this Part it becomes necessary to determine whether the investor has held the investment (or any part of it) continuously throughout any period.

(2) The investor is not treated as having held the investment (or any part of it) continuously throughout a period if the investor--

(a) is treated, under any provision of TCGA 1992, as having disposed of and immediately re-acquired the investment (or part) at any time during the period, or

(b) is treated as having disposed of the investment (or part) at any such time, by virtue of section 379(2).

381 Meaning of "associate"

(1) In this Part "associate", in relation to a person, means--

(a) any relative or partner of that person,

(b) the trustee or trustees of any settlement in relation to which that person, or any relative of that person (living or dead), is or was a settlor, and

(c) if that person has an interest in any shares or obligations of a company which are subject to any trust or are part of the estate of a deceased person--

(i) the trustee or trustees of the settlement concerned or, as the case may be, the personal representatives of the deceased, and

(ii) if that person is a company, any other company which has an interest in those shares or obligations.

(2) In subsection (1)(a) and (b) "relative" means spouse or civil partner, ancestor or lineal descendant.

(3) In subsection (1)(b) "settlor" and "settlement" have the same meaning as in Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act).

382 Minor definitions etc

(1) In this Part--

  • "body" includes an unincorporated association, and

  • "bonus shares" means shares which are issued otherwise than for payment (whether in cash or otherwise).

(2) For the purposes of this Part shares in a company are not treated as being of the same class unless they would be so treated if dealt in on the Stock Exchange.

(3) For the purposes of this Part the market value at any time of any asset is the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it.

(4) In this Part--

(a) references to CITR obtained by the investor in respect of any investment (or part of an investment) include references to CITR obtained by the investor in respect of that investment (or part) at any time after the investor has disposed of it, and

(b) references to the withdrawal or reduction of CITR obtained by the investor in respect of the investment (or any part of it) include references to the withdrawal or reduction of CITR obtained in respect of that investment (or part) at any such time.

(5) In the case of any condition that cannot be met until a future date--

(a) references in this Part to a condition being met for the time being are to nothing having occurred to prevent its being met, and

(b) references to its continuing to be met are to nothing occurring to prevent its being met.



Part 8 Other reliefs

Chapter 1 Interest payments

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The relief: introduction

383 Relief for interest payments

(1) A person who pays interest in a tax year is entitled to relief for the tax year for the interest if--

(a) the loan on which the interest is payable is a loan to which a provision specified in subsection (2) applies,

(b) the interest is eligible for relief in accordance with this Chapter, and

(c) the person makes a claim.

(2) The provisions are--

(a) section 388 (loan to buy plant or machinery for partnership use),

(b) section 390 (loan to buy plant or machinery for employment use),

(c) section 392 (loan to buy interest in close company),

(d) section 396 (loan to buy interest in employee-controlled company),

(e) section 398 (loan to invest in partnership),

(f) section 401 (loan to invest in co-operative), and

(g) section 403 (loan to pay inheritance tax).

(3) The amount of the relief given under subsection (1) is equal to the amount of the interest eligible for relief.

(4) The relief is given by deducting that amount in calculating the person's net income for the tax year in which the interest is paid (see Step 2 of the calculation in section 23).

(5) This section is subject to--

(a) section 384 (general restrictions on relief under this Chapter),

(b) section 385 (general provisions about loans),

(c) section 386 (loans partly meeting requirements),

(d) section 387 (exclusion of double relief etc), and

(e) section 405 (carry back and forward of relief for interest on loans within section 403).

(6) See also section 51(2) of FA 2005 (under which this Chapter applies as if arrangements falling within section 47 of that Act were loans and alternative finance return were interest).

384 General restrictions on relief under Chapter

(1) Relief is not to be given under this Chapter for interest on a debt incurred--

(a) by overdrawing an account, or

(b) by debiting the account of any person as the holder of a credit card or under similar arrangements.

(2) If interest is paid at a rate in excess of a reasonable commercial rate, relief is not to be given under this Chapter for so much of the interest as represents the excess.

385 General provisions about loans

(1) References in this Chapter to a loan being used or used in any way--

(a) are references to the money lent being applied or, as the case may be, applied in that way, and

(b) except in section 403 include references to a loan being used to meet expenditure already incurred or, as the case may be, already incurred on such a use.

(2) Sections 392, 396, 398, 401 and 403 apply to a loan only if it is made--

(a) in connection with the use of money, and

(b) on the occasion of its use or within what is in the circumstances a reasonable time from its use.

(3) Those sections apply to a loan only if the loan is used as mentioned in those sections without first having been used for another purpose.

(4) For the purposes of this Chapter the giving of credit for any money due from the purchaser under a sale is treated as the making of a loan used by the purchaser in making the purchase.

386 Loans partly meeting requirements

(1) If, at the time a loan ("the mixed loan") is used, only part of the mixed loan is a loan to which any of the provisions specified in section 383(2) apply, for the purposes of this Chapter that part ("the qualifying part") is treated as a loan to which the provision in question applies.

(2) Accordingly, the corresponding proportion of the interest on the mixed loan is eligible for relief.

(3) If a mixed loan is partly repaid, for the purposes of this Chapter the corresponding proportion of the repayment is treated as repaying the qualifying part (but see section 406(5)).

(4) In this section "the corresponding proportion" means the proportion that the qualifying part bears to the whole of the mixed loan at the time the mixed loan is used.

387 Exclusion of double relief etc

(1) Interest for which relief is given under this Chapter is not allowable as a deduction for any other income tax purposes.

(2) No relief is given under this Chapter for any tax year for the payment of any interest taken into account in calculating the profits of--

(a) any trade, profession or vocation,

(b) any UK property business, or

(c) any overseas property business.

(3) If interest is so taken into account, no relief is given under this Chapter for any relevant tax year for other interest on the same debt or liability.

(4) A tax year is a relevant one if the interest has been taken into account in calculating the profits of the trade, profession, vocation or business of the tax year.

(5) For the purposes of subsection (3) all interest which--

(a) is capable of being taken into account in calculating the profits of a trade, profession, vocation or business, and

(b) is payable by the same person on money advanced to the person on current account,

is treated as interest on the same debt.

(6) It does not matter whether the money is advanced--

(a) on one or more accounts, or

(b) by the same or separate banks or other persons.

(7) The reference in subsections (2) to (4) to interest taken into account is a reference to interest allowed as a deduction in an assessment which can no longer be varied (whether on appeal or otherwise).



Loans for plant or machinery

388 Loan to buy plant or machinery for partnership use

(1) This section applies to a loan that is used for capital expenditure on the provision of plant or machinery to which subsection (2) applies.

(2) This subsection applies to plant or machinery if--

(a) it is in use for the purposes of a trade, profession or ordinary property business carried on by a partnership, and

(b) the partnership is entitled to a capital allowance or liable to a balancing charge in respect of it under section 264 of CAA 2001 (partnership using property of a partner) for the period of account in which the interest is paid.

(3) A partnership is treated as entitled to a capital allowance or liable to a balancing charge in respect of plant or machinery for a period of account ("the later period") for the purposes of subsection (2)(b) if--

(a) it has been so entitled or liable for a previous period of account, and

(b) no disposal value has been brought into account in respect of it in the later period or any earlier period of account.

(4) In this section and sections 389 and 390--

  • "capital expenditure" has the meaning given in section 4 of CAA 2001,

  • "period of account" has the same meaning as in that Act (see section 6(2) to (6) of that Act), and

  • "ordinary property business" has the same meaning as in Part 2 of that Act (see section 16 of that Act).

389 Eligibility requirements for interest on loans within section 388

(1) Interest on a loan within section 388(1) is eligible for relief if conditions A and B are met.

(2) Condition A is that the interest is paid by an individual who is a member of the partnership referred to in section 388(2).

(3) Condition B is that the interest falls due and payable not later than 3 years after the end of the period of account in which the loan was made.

(4) If the machinery or plant is in use partly for the purposes of the trade, profession or ordinary property business carried on by the partnership referred to in section 388(2) ("trade purposes") and partly for other purposes, only part of the interest is eligible for relief.

(5) That part is such part as it is just and reasonable to attribute to trade purposes, having regard to all the relevant circumstances and, in particular, to the extent of the use for other purposes.

390 Loan to buy plant or machinery for employment use

(1) This section applies to a loan that is used for capital expenditure on the provision of plant or machinery to which subsection (2) applies.

(2) This subsection applies to plant or machinery if--

(a) it is in use for the purposes of an office or employment held by an individual in the tax year,

(b) the plant or machinery belongs to the individual, and

(c) the individual is entitled to a capital allowance or liable to a balancing charge in respect of it under Part 2 of CAA 2001 for the tax year.

(3) An individual is treated as entitled to a capital allowance or liable to a balancing charge in respect of plant or machinery for a tax year ("the later year") for the purposes of subsection (2)(c) if--

(a) the individual has been so entitled or liable for a previous tax year, and

(b) no disposal value has been brought into account in respect of it in the later year or any earlier year.

(4) An individual is also treated as so entitled or liable for the purposes of this section if the individual would be so entitled or liable but for a contribution made by the individual's employer.

391 Eligibility requirements for interest on loans within section 390

(1) Interest on a loan within section 390(1) is eligible for relief if conditions A and B are met.

(2) Condition A is that the interest is paid by the individual referred to in section 390(2).

(3) Condition B is that the interest falls due and payable not later than 3 years after the end of the tax year in which the loan was made.

(4) If the machinery or plant is in use partly for the purposes of the office or employment referred to in section 390(2) ("employment purposes") and partly for other purposes, only part of the interest is eligible for relief.

(5) That part is such part as it is just and reasonable to attribute to employment purposes having regard to all the relevant circumstances and, in particular, to the extent of the use for other purposes.



Loans for interests in close companies

392 Loan to buy interest in close company

(1) This section applies to a loan to an individual that is used in one or more of the ways specified in subsection (2).

(2) The ways are--

(a) acquiring any part of the ordinary share capital of a close company that is not a close investment-holding company,

(b) lending to such a company money which is used wholly and exclusively--

(i) for the purposes of the business of the company, or

(ii) for the purposes of the business of any associated company of the company which is also a close company that is not a close investment-holding company, or

(c) repaying another loan to which this section applies.

(3) Subsection (2)(a) does not apply if at any time the individual by whom the shares are acquired or that individual's spouse or civil partner--

(a) makes a claim for relief in respect of them under Part 5 of this Act or, in the case of shares issued before 6 April 2007, Chapter 3 of Part 7 of ICTA (enterprise investment scheme), or

(b) makes a claim in respect of them under Schedule 5B to TCGA 1992 (enterprise investment scheme: reinvestment).

(4) In this section and section 393--

  • "close investment-holding company" has the meaning given by section 13A(1) of ICTA (companies not qualifying for small companies' relief), and

  • "associated company" has the meaning given by section 416 of ICTA.

(5) This section is subject to section 411 (ineligibility of interest where business is occupation of commercial woodlands).

393 Eligibility requirements for interest on loans within section 392

(1) Interest on a loan within section 392(1) to an individual is eligible for relief only if--

(a) when the interest is paid the company is not a close investment-holding company, and

(b) the capital recovery condition and either the full-time working conditions or the material interest conditions are met.

(2) The capital recovery condition is that in the period from the use of the loan to the payment of the interest the individual has not recovered any capital from the company, apart from any amount taken into account under section 406(2) (recovered capital that is treated as a repayment of the loan).

(3) The full-time working conditions are that--

(a) when the interest is paid the individual holds part of the ordinary share capital of the company, and

(b) in the period from the use of the loan to the payment of the interest the greater part of the individual's time has been spent in the actual management or conduct of the company or of an associated company of the company.

(4) The material interest conditions are that--

(a) when the interest is paid the individual has a material interest in the company (see section 394), and

(b) if the company exists wholly or mainly for the purpose of holding investments or other property, either--

(i) the condition in subsection (3)(b) is met, or

(ii) no property held by the company is used as a residence by the individual.

394 Meaning of "material interest" in section 393

(1) For the purposes of section 393(4)(a) an individual has a material interest in a company if a relevant person meets condition A or B.

(2) In this section "relevant person" means--

(a) the individual, either alone or with one or more associates (see section 395), or

(b) any associate of the individual with or without such other associates.

(3) Condition A is that the relevant person is the beneficial owner of, or able directly or indirectly to control, more than 5% of the ordinary share capital of the company.

(4) Condition B is that the relevant person possesses, or is entitled to acquire, such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 5% of the assets which would then be available for distribution among the participators.

(5) In this section--

  • "control" has the meaning given by section 416(2) to (6) of ICTA, and

  • "participator" has the meaning given by section 417(1) of ICTA.

395 Meaning of "associate" in section 394

(1) For the purposes of determining under section 394 whether an individual has a material interest in a company, in that section "associate", in relation to that individual and company, means--

(a) a relative or partner of the individual,

(b) the trustees of a settlement in relation to which--

(i) the individual is a settlor, or

(ii) a relative of the individual (living or dead) is or was a settlor,

(c) if the individual is interested in any shares or obligations of the company which are subject to a trust, the trustees of the settlement, and

(d) if the individual is interested in any shares or obligations of the company which are part of the estate of a deceased person, the personal representatives.

(2) But, despite subsection (1)(c), the trustees of an employee benefit trust are not regarded for the purposes of section 394 as the associates of an individual merely because the individual has an interest in shares or obligations of the company as a beneficiary of the trust, unless subsection (3) applies.

(3) This subsection applies if at any time after 26 July 1989 the individual, alone or with associates, or an associate of the individual, alone or with other such associates--

(a) has been the beneficial owner of more than 5% of the ordinary share capital of the company, or

(b) has been able directly or indirectly to control more than 5% of that share capital.

(4) In subsection (3) "associate" has the meaning given by section 549(4) of ITEPA 2003.

(5) Sections 552 to 554 of ITEPA 2003 (attribution of interests in company) apply for the purposes of subsection (3) in relation to the individual as they apply for the purposes of the provisions listed in section 549(2) of that Act in relation to an employee.

(6) In this section--

  • "control" has the meaning given by section 416(2) to (6) of ICTA,

  • "employee benefit trust" has the meaning given by section 550 of ITEPA 2003 except that the reference in section 550(3) of that Act to 13 March 1989 is to be read as a reference to 26 July 1989, and

  • "relative" means spouse or civil partner, ancestor or lineal descendant or brother or sister.



Loans for interests in employee-controlled companies

396 Loan to buy interest in employee-controlled company

(1) This section applies to a loan to an individual that is used in one or more of the ways specified in subsection (2).

(2) The ways are--

(a) acquiring part of the ordinary share capital of a company that--

(i) first becomes an employee-controlled company after the acquisition, or

(ii) first became such a company not later than 12 months before the acquisition, and

(b) repaying another loan to which this section applies.

(3) For the purposes of this section and section 397, a company is employee-controlled at any time when--

(a) more than 50% of the issued ordinary share capital of the company is owned beneficially by persons who are full-time employees of the company, and

(b) more than 50% of the voting power in the company is so owned.

(4) If an individual owns beneficially more than 10% of the issued ordinary share capital of, or voting power in, a company, for the purposes of subsection (3) the excess is treated as being owned by an individual who is not a full-time employee of the company.

(5) In this section and section 397 "full-time employee", in relation to a company, means an individual the greater part of whose time is spent working as an employee or director of the company or of a 51% subsidiary of the company.

(6) This section is subject to section 411 (ineligibility of interest where business is occupation of commercial woodlands).

397 Eligibility requirements for interest on loans within section 396

(1) Interest on a loan within section 396 to an individual is eligible for relief only if conditions A to D are met.

(2) Condition A is that the company is, throughout the period beginning with the date on which the shares are acquired and ending with the date on which the interest is paid ("the payment date")--

(a) an unquoted company that is UK resident and is not resident outside the United Kingdom, and

(b) a trading company or the holding company of a trading group.

(3) Condition B is that during the tax year in which the interest is paid the company either--

(a) first becomes an employee-controlled company, or

(b) is such a company throughout a period of at least 9 months.

(4) Condition C is that--

(a) the individual is a full-time employee of the company throughout the period beginning with the date on which the loan is used ("the use date") and ending with the payment date, or

(b) the individual ceased to be such an employee not more than 12 months before the payment date and was such an employee throughout the period beginning with the use date and ending with the date the individual ceased to be such an employee.

(5) Condition D is that in the period from the use of the loan to the payment of the interest the individual has not recovered any capital from the company, apart from any amount taken into account under section 406(2) (recovered capital that is treated as a repayment of the loan).

(6) In this section--

  • "holding company" means a company whose business (ignoring any trade carried on by it) consists wholly or mainly of the holding of shares or securities of one or more companies which are its 75% subsidiaries,

  • "trading company" means a company whose business consists wholly or mainly of the carrying on of a trade or trades,

  • "trading group" means a group the business of whose members taken together consists wholly or mainly of the carrying on of a trade or trades (taking a group to consist of a company with one or more 75% subsidiaries and those subsidiaries), and

  • "unquoted company" means a company none of whose shares is listed in the Official List of the Stock Exchange.



Loans for investing in partnerships

398 Loan to invest in partnership

(1) This section applies to a loan to an individual that is used in one or more of the ways specified in subsection (2).

(2) The ways are--

(a) purchasing a share in a partnership,

(b) contributing money to a partnership, by way of capital or premium, that is used wholly for the purposes of the trade or profession carried on by the partnership,

(c) advancing money to a partnership that is so used, and

(d) repaying another loan to which this section applies.

(3) This section is subject to section 411 (ineligibility of interest where business is occupation of commercial woodlands).

399 Eligibility requirements for interest on loans within section 398

(1) Interest on a loan within section 398 to an individual is eligible for relief only if conditions A and B are met.

(2) Condition A is that throughout the period from the use of the loan until the interest is paid the individual has been a member of the partnership otherwise than--

(a) as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907 (c. 24), or

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