Finance Act 1982

26 Deduction of tax from certain loan interest

(1) If a person who is a qualifying borrower makes a payment of relevant loan interest to which this section applies, he shall be entitled, on making the payment, to deduct and retain out of it a sum equal to income tax thereon at the basic rate for the year of assessment in which the payment becomes due; and, accordingly, section 75 of the [1972 c. 41.] Finance Act 1972 (relief for payment of interest), section 54 of the Taxes Act (certain payments of interest to be made under deduction of tax) and section 343(4) of the Taxes Act (no deduction of income tax from payment of interest to building societies) shall not apply to that payment of relevant loan interest.

(2) Where a sum is deducted under subsection (1) above from a payment of relevant loan interest.—

(a) the person to whom the payment is made shall allow the deduction on receipt of the residue ;

(b) the borrower shall be acquitted and discharged of so much money as is represented by the deduction as if the sum had been actually paid; and

(c) the sum deducted shall be treated as income tax paid by the person to whom the payment is made.

(3) Part I of Schedule 7 to this Act shall have effect to determine what is relevant loan interest, Part II of that Schedule shall have effect with respect to the application of this section to any such interest and Parts III and IV of that Schedule shall have effect with respect to qualifying borrowers and qualifying lenders respectively.

(4) Where payments of relevant loan interest to which this section applies become due in any year, the borrower shall be charged with, tax at the basic rate for that year on an amount of income equal, subject to subsection (5) below, to the deduction which, in computing his total income, falls to be made on account of those payments.

(5) In any case where—

(a) payments of relevant loan interest to which this section applies become due in any year ; and

(b) the total income of the borrower for that year is such that he cannot benefit from any or, as the case may be, the full amount of the relevant personal reliefs to which he is entitled,

so much of that full amount as cannot be deducted from his total income shall be deducted from the amount of income on which he is chargeable to tax by virtue of subsection (4) above.

(6) In subsection (5) above " relevant personal relief " means any relief to which the borrower concerned is entitled under Chapter II of Part I of the Taxes Act, other than—

(a) relief under section 19 of that Act (premiums on life insurance policies) which is given either by deduction by virtue of paragraph 5 of Schedule 4 to the [1976 c. 40.] Finance Act 1976 or in accordance with paragraph 15 of that Schedule; and

(b) relief under section 20 of the Taxes Act (deferred annuities) ;

and for the purposes of subsection (5) above the full amount of those reliefs means the amount of them determined without regard to section 25 of the Taxes Act (under which reliefs are limited so as not to exceed total income).

(7) Sections 240(5) and 246(3) of the Taxes Act (which require income tax deducted from payments received by certain companies to be set off against corporation tax and denies the company the right to repayment of income tax) shall not apply to a payment of relevant loan interest to which this section applies which is received by any company, but, in accordance with regulations under section 29 below, any person by whom such a payment is received shall be entitled to recover from the Board an amount equal to the sum which, by virtue of subsection (2)(c) above is treated as income tax paid by him; and any amount so recovered shall be treated for the purposes of the Tax Acts in like manner as the payment of relevant loan interest to which it relates.

(8) Notwithstanding paragraph (f) of section 130 of the Taxes Act (prohibition on deduction of annual payments other than interest in computing profits or gains of a trade etc.) no sum shall be deducted in respect of relevant loan interest in computing the amount of the profits or gains to be charged under Case I or II of Schedule D and, accordingly, no sum shall be so deducted in computing the profits or gains to be charged under Case VI of that Schedule.

(9) In the [1976 c. 40.] Finance Act 1976—

(a) in section 66 (taxation of benefit of employment linked loans) at the end of subsection (8) there shall be added the words " or which would be so eligible apart from section 26 of the Finance Act 1982 "; and

(b) in paragraph 8 of Schedule 8 (provisions supplementary to section 66) the following sub-paragraph shall be substituted for sub-paragraph (1)—

“(1) Interest is elegible for relief for the purposes of this Part of this Schedule if it is eligible for relief under section 75 of the [1972 c. 41.] Finance Act 1972 or would be eligible for such relief apart from section 26 of the Finance Act 1982.”