Finance Act 1982

Section 26.

SCHEDULE 7 Deduction of Tax from Certain Loan Interest

PART I Relevant Loan Interest

Interpretation

1 In this Schedule—

• " the 1967 Act " means the [1967 c. 29.] Housing Subsidies Act 1967 ;

• "the 1972 Schedule" means Schedule 9 to the [1972 c. 41.] Finance Act 1972 (relief for interest on loans for purchase or improvement of land etc.);

• " the 1974 Schedule" means Schedule 1 to the [1974 c. 30.] Finance Act 1974 (modification of rules for relief for interest) ;

• " the 1981 Order " means the [S.I. 1981/156 (N.I. 3).] Housing (Northern Ireland) Order 1981 ;

• " notice " means notice in writing ;

• "prescribed", except in Part IV, means prescribed by the Board;

• " the principal section " means section 26 of this Act; and

• " regulations" means regulations made by the Board under section 29 of this Act.

Qualifying conditions

2 (1) Subject to the following provisions of this Schedule, interest which is paid and payable in the United Kingdom to a qualifying lender and to which sub-paragraph (2) or sub-paragraph (3) below applies is " relevant loan interest",

(2) This sub-paragraph applies to interest if—

(a) it is interest falling within paragraph 1 of the 1972 Schedule (interest on loans for purchase or improvement of land) or paragraph 24 of the 1974 Schedule (interest on loans to purchase life annuities) ; and

(b) apart from subsection (1) or subsection (8) of the principal section and, where applicable, paragraph 5 or paragraph 24(3) of the 1974 Schedule (the tax relief limit) the whole of the interest either would be eligible for relief under section 75 of the [1972 c. 41.] Finance Act 1972 or would be taken into account in a computation of profits or gains or losses for the purposes of Case I, Case II or Case VI of Schedule D for any year of assessment; and

(c) except in the case of interest falling within paragraph 24 of the 1974 Schedule, at the time the interest is paid, the condition in either paragraph 4 or paragraph 4A of the 1974 Schedule is fulfilled with respect to the land, caravan or houseboat to which the loan concerned relates ;

but, unless sub-paragraph (4) or sub-paragraph (5) below applies, this sub-paragraph does not apply to interest which becomes due before 6th April 1983.

(3) This sub-paragraph applies to interest which becomes due on or after 1st April 1983 and is payable on a loan—

(a) in respect of which there is in force on 31st March 1983—

(i) an option notice given under section 24(2) of the 1967 Act (option mortgages), other than one falling within section 27(3)(b) of this Act; or

(ii) an option notice given under Article 142(2) of the 1981 Order (option mortgages in Northern Ireland), other than one falling within section 27(4)(b) of this Act; and

(b) which relates to a dwelling in respect of which, at the time the interest is paid, the condition in paragraph 4 of the 1974 Schedule is fulfilled.

(4) Sub-paragraph (2) above applies to interest which becomes due on or after 1st April 1983 (instead of 6th April 1983) if the qualifying lender to whom it is payable is either a building society, within the meaning of the [1962 c. 37.] Building Societies Act 1962 or the [1967 c. 31 (N.I.).] Building Societies Act (Northern Ireland) 1967, or a local authority.

(5) If an application in that behalf is made to the Board by a qualifying lender, sub-paragraph (2) above applies to interest which becomes due on or after such date as may be specified by the Board for the purposes of that sub-paragraph (instead of 6th April 1983).

(6) The Board shall not under sub-paragraph (5) above specify a date earlier than 1st March 1983 or later than 5th April 1983 and the Board shall notify the qualifying lender concerned of the date specified under that sub-paragraph.

(7) Sub-paragraph (2) above does not apply to interest payable on a loan the only security for which is a contract of insurance on human life or a contract to pay an annuity on human life.

3 (1) In determining whether sub-paragraph (2) of paragraph 2 above applies to any interest, paragraph 1 of the 1972 Schedule and paragraph 24 of the 1974 Schedule shall each have effect as if the words " or the Republic of Ireland " were omitted.

(2) In determining whether sub-paragraph (2)(c) of paragraph 2 above applies to any interest, sub-paragraph (1) of paragraph 4 of the 1974 Schedule (restrictions on reliefs under the 1972 Schedule) shall have effect as if—

(a) in paragraph (a) after the word " used ", where it first occurs, there were inserted the words " wholly or to a substantial extent "; and

(b) paragraph (6) (commercial lettings) and the word "or" immediately preceding it were omitted.

(3) In determining for the purposes of paragraph 2(3)(b) above whether the condition in paragraph 4 of the 1974 Schedule is for the time being fulfilled with respect to any dwelling.—

(a) sub-paragraph (1) of that paragraph shall have effect as if for the words from " Part I of Schedule 9" to " used " (where it first occurs) there were substituted the words " interest shall not be relevant loan interest for the purposes of section 26 of the Finance Act 1982 unless the dwelling to which the loan relates is at the time the interest is paid used wholly or partly " and paragraph (b) and the word " or " immediately preceding it were omitted ; and

(b) sub-paragraph (3) of that paragraph shall have effect as if for the words " land, caravan or house-boat" there were substituted the word " dwelling ".

(4) Where at a time when interest on a loan (in this sub-paragraph referred to as " the first loan ") is relevant loan interest, the borrower raises another loan to defray money to be applied as mentioned in paragraph 1 of the 1972 Schedule with a view—

(a) to the use of other land or another caravan or house-boat wholly or partly as that person's only or main residence, and

(b) to the disposal of the land, caravan, house-boat or dwelling to which the first loan relates,

then, in relation to interest payable within twelve months from the making of the other loan, the condition in paragraph 4 of the 1974 Schedule shall be treated as continuing to be fulfilled.

(5) If in a case falling within sub-paragraph (4) above, the interest on the first loan referred to in that sub-paragraph is interest to which paragraph 2(2) above applies and a direction is given under paragraph 6 of the 1974 Schedule extending the period within which Part I of the 1972 Schedule applies to that first loan, sub-paragraph (4) above shall have effect in relation to that case as if for the reference to twelve months there were substituted a reference to such longer period as is specified in the direction.

(6) If, in a case falling within sub-paragraph (4) above, the interest on the first loan is interest to which paragraph 2(3) above applies and, having regard to the circumstances of that case, it appears to the Board reasonable to do so, they may direct that, in relation to that case, that sub-paragraph shall have effect as if for the reference to twelve months there were substituted a reference to such longer period as meets the circumstances of that case.

4 (1) Notwithstanding anything in paragraph 2 above, interest on a home improvement loan is not relevant loan interest unless—

(a) the qualifying lender to whom the interest is payable is a building society, within the meaning of the [1962 c. 37.] Building Societies Act 1962 or the [1967 c. 31 (N.I.).] Building Societies Act (Northern Ireland) 1967, or a local authority or the Northern Ireland Housing Executive ; or

(b) the qualifying lender to whom the interest is payable has given notice to the Board in accordance with regulations that he is prepared to have those home improvement loans in respect of which he is the lender and which were made after such date as he may specify in the notice brought within the tax deduction scheme.

(2) A qualifying lender may not specify a date in a notice under sub-paragraph (1) above which is earlier than the earliest date on which paragraph 2 above applies to interest on any loan (whether or not a home improvement loan) made by him.

(3) In this paragraph " home improvement loan" means a loan made to defray money applied wholly in improving or developing land or buildings on land or in paying off another loan which was itself to defray money so applied.

(4) Paragraphs 3 and 4 of the 1972 Schedule (construction of references to money applied in improving or developing land or buildings) shall apply for the purposes of this paragraph as they apply for the purposes of Part I of that Schedule.

Loans over the tax relief limit

5 (1) The provisions of this paragraph have effect in relation to a loan where, by virtue of sub-paragraphs (1) and (2) of paragraph 5 or paragraph 24(3) of the 1974 Schedule (the limit on eligibility for tax relief), only part of the interest on the loan would (apart from the principal section) be eligible for relief under section 75 of the [1972 c. 41.] Finance Act 1972; and in this paragraph any such loan is referred to as a " limited loan ".

(2) None of the interest on a limited loan is relevant loan interest unless the qualifying lender to whom the interest is payable has given notice to the Board in accordance with regulations that he is prepared to have limited loans of a description which includes that limited loan brought within the tax deduction scheme.

(3) If, in a case where sub-paragraph (2) above applies, paragraph 5(2) of the 1974 Schedule requires another loan to be taken into account for the purpose of determining that part of the limited loan interest on which would (apart from the principal section) be eligible for relief as mentioned in sub-paragraph (1) above, none of the interest on the limited loan is relevant loan interest unless that other loan was made by the same qualifying lender as the limited loan.

(4) Where notice has been given as mentioned in sub-paragraph (2) above and, if sub-paragraph (3) above also applies, the condition in that sub-paragraph is fulfilled only so much of the interest as (apart from the principal section) would be eligible for relief under section 75 of the [1972 c. 41.] Finance Act 1972 is relevant loan interest.

Joint borrowers

6 (1) Where a loan on which interest is payable by the borrower was made jointly to the borrower and another person who is not the borrower's husband or wife, the interest on the loan is not relevant loan interest unless—

(a) each of the persons to whom the loan was made is a qualifying borrower; and

(b) in relation to each of them considered separately, the whole of that interest is relevant loan interest, in accordance with the preceding provisions of this Part of this Schedule.

(2) References in this paragraph to the borrower's husband or wife do not include references to a separated husband or wife, and for this purpose " separated " has the same meaning as in Part II of the 1974 Schedule.

PART II Application of the Principal Section

7 (1) The principal section does not apply to any relevant loan interest unless either—

(a) in the case of a loan of a description specified by regulations for the purposes of this sub-paragraph, the borrower or, in the case of joint borrowers, each of them has given notice to the lender in the prescribed form certifying—

(i) that he is a qualifying borrower ; and

(ii) that the interest is relevant loan interest; and

(iii) such other matters as may be prescribed ; or

(b) the Board have given notice to the lender and the borrower that the interest may be paid under deduction of tax ; or

(c) it is interest to which paragraph 2(3) above applies ; or

(d) the loan to which the interest relates was made, subject to sub-paragraph (4) below, before 1st April 1983 and is of a description specified by regulations for the purposes of this sub-paragraph.

(2) Where notice has been given as mentioned in paragraph (a) or paragraph (b) of sub-paragraph (1) above, the principal section applies to any relevant loan interest to which the notice relates and which becomes due on or after the relevant date, as denned in sub-paragraph (3) below; and in a case falling within paragraph (c) or paragraph (d) of sub-paragraph (1) above, the principal section applies to the relevant loan interest referred to in that paragraph.

(3) In the case of a notice under paragraph (a) of sub-paragraph (1) above, the relevant date is the date the notice is given and, in the case of a notice under paragraph (b) of that paragraph, the relevant date is a date specified in the notice as being the relevant date (which may be earlier than the date so specified as the date from which the interest may be paid under deduction of tax).

(4) In the case of relevant loan interest—

(a) which falls within sub-paragraph (2) of paragraph 2 above, and

(b) to which sub-paragraph (4) or sub-paragraph (5) of that paragraph does not apply, for the reference in sub-paragraph (1)(4) above to 1st April 1983 there shall be substituted a reference to 6th April 1983.

(5) In the case of relevant loan interest—

(a) which falls within sub-paragraph (2) of paragraph 2 above, and

(b) to which sub-paragraph (5) of that paragraph applies,

for the reference in sub-paragraph (1)(d) above to 1st April 1983 there shall be substituted a reference to the date specified by the Board and notified under sub-paragraph (6) of paragraph 2 to the qualifying lender to whom the interest is payable.

8 (1) If at any time—

(a) the interest on a loan ceases to be relevant loan interest, or

(b) a person making payments of relevant loan interest ceases to be a qualifying borrower,

the borrower shall give notice of that fact to the lender.

(2) Without prejudice to sub-paragraph (3) below, in relation to a payment of interest—

(a) which is due after the time referred to in sub-paragraph (1) above and before the date on which notice is given under that sub-paragraph, and

(b) from which a deduction was made as mentioned in subsection (1) of the principal section,

the principal section, except subsection (8), shall have effect as if the payment were a payment of relevant loan interest made by a qualifying borrower.

(3) Nothing in sub-paragraph (2) above entitles the borrower to any relief from tax or other benefit and, accordingly, where the amount of any such relief or other benefit which is allowed by virtue of that sub-paragraph exceeds that which ought to have been allowed, he shall be liable to make good the excess and an inspector may make such assessments as may in his judgment be required for recovering the excess.

(4) The [1970 c. 9.] Taxes Management Act 1970 shall apply to an assessment under this paragraph as if it were an assessment to tax for the year of assessment in which the relief was given and as if—

(a) the assessment were among those specified in sections 55(1) (recovery of tax not postponed) and 86(2) (interest on overdue tax) of that Act; and

(b) the sum charged by the assessment were tax specified in paragraph 3 of the Table in section 86(4) of that Act (reckonable date).

9 (1) If, as a result of receiving a notice under paragraph 8 above or otherwise, a qualifying lender has reason to believe that any interest is no longer relevant loan interest or that a borrower is no longer a qualifying borrower, the lender shall furnish the Board with such information as is in his possession with respect to those matters.

(2) At the end of the second column of the Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalty for failure to furnish information etc.) there shall be inserted—

“Paragraph 9(1) of Schedule 7 to the Finance Act 1982”.

10 (1) Where it appears to the Board that any of the provisions of Part I of this Schedule is not or may not be fulfilled with respect to any interest, or that a qualifying borrower has or may have ceased to be a qualifying borrower, they shall give notice of that fact to the lender and the borrower specifying the description of relevant loan interest concerned or, as the case may be, that the borrower has or may have ceased to be a qualifying borrower.

(2) The principal section shall not apply to any payment of relevant loan interest of a description to which a notice under sub-paragraph (1) above relates and which becomes due or is made after such date as may be specified in the notice and before such date as may be specified in a further notice given by the Board to the lender and the borrower.

11 In any case where—

(a) the principal section applies to any relevant loan interest by virtue of a notice under paragraph 7(1)(b) above, and

(b) the relevant date specified in the notice is earlier than the date from which the interest begins to be paid under deduction of tax, and

(c) a payment of that interest was made on or after the relevant date but not under deduction of tax,

regulations may provide for a sum to be paid by the Board of an amount equal to that which the borrower would have been able to deduct from that payment by virtue of the principal section if it had been made after the relevant date.

12 (1) No obligation as to secrecy imposed by statute or otherwise on persons employed in relation to Inland Revenue shall prevent information relating to any loan in respect of which an option notice has been given as mentioned in paragraph 2(3)(a) above from being disclosed to the Secretary of State or the Department of the Environment for Northern Ireland, or to an officer of either of them authorised to receive such information, in connection with the exercise by the Secretary of State or that Department of any of his or their functions in relation to any such loan.

(2) Sub-paragraph (1) above extends only to disclosure by or under the authority of the Inland Revenue; and information which is disclosed to any person by virtue of sub-paragraph (1) above shall not be further disclosed to any other person unless—

(a) it could have been disclosed to that other person in accordance with sub-paragraph (1) above ; or

(b) the disclosure is made for the purposes of any civil or criminal proceedings concerned with the loan to which the disclosure relates.

PART III Qualifying Borrowers

13 (1) Subject to the provisions of this paragraph, an individual is for the purposes of the principal section and this Schedule a qualifying borrower with respect to the interest on any loan.

(2) In relation to interest paid at a time when the borrower or the borrower's husband or wife holds an office or employment in respect of the emoluments of which he or she would but for some special exemption or immunity from tax be chargeable to tax under Case I, Case II or Case III of Schedule E, the borrower is not a qualifying borrower.

(3) In sub-paragraph (2) above references to the borrower's husband or wife do not include references to a separated husband or wife, and for this purpose " separated " has the same meaning as in Part II of the 1974 Schedule.

PART IV Qualifying Lenders

14 (1) The following bodies are qualifying lenders for the purposes of the principal section and Parts I to III of this Schedule: —

(a) a building society within the meaning of the [1962 c. 37.] Building Societies Act 1962 or the [1967 c. 31 (N.I.).] Building Societies Act (Northern Ireland) 1967;

(b) a local authority ;

(c) the Bank of England ;

(d) the Post Office ;

(e) a company which is authorised under section 3 or section 4 of the [1981 c. 31.] Insurance Companies Act 1981 to carry on in the United Kingdom any of the classes of business specified in Schedule 1 to that Act;

(f) a trustee savings bank within the meaning of the [1981 c. 65.] Trustee Savings Bank Act 1981 ;

(g) a registered friendly society or branch, within the meaning of the [1974 c. 56.] Friendly Societies Act 1974 or the [1970 c. 31 (N.I.).] Friendly Societies Act (Northern Ireland) 1970 ;

(h) a development corporation within the meaning of the [1981 c. 64.] New Towns Act 1981 or the [1968 c. 16.] New Towns (Scotland) Act 1968 ;

((j)) the Commission for the New Towns ;

(k) the Housing Corporation;

(l) the Northern Ireland Housing Executive ;

(m) the Scottish Special Housing Association ;

(n) the Development Board for Rural Wales ;

(o) any of the following which is prescribed under sub-paragraph (2) below, namely, a recognised bank or licensed institution, within the meaning of the [1979 c. 37.] Banking Act 1979, a company which is authorised as mentioned in paragraph (e) above to carry on in the United Kingdom any of the classes of business specified in Schedule 2 to the [1981 c. 31.] Insurance Companies Act 1981, and a 90 per cent, subsidiary of any such bank, institution or company or of a company within paragraph (e) above.

(2) The Treasury may by order prescribe for the purposes of this Part of this Schedule generally or in relation to any specified description of loan any of the bodies referred to in paragraph (o) of sub-paragraph (1) above ; and a body which is prescribed by such an order shall become a qualifying lender for the purposes referred to in that sub-paragraph generally or, as the case may be, in relation to such description of loan as is specified in the order with effect from the beginning of the first year of assessment which begins after the date on which the order is made.

15 Without prejudice to paragraph 14 above, in relation to interest to which sub-paragraph (3) of paragraph 2 above applies, the person who, as a qualifying lender for the purposes of Part II of the 1967 Act or Part VIU of the 1981 Order, was the lender in relation to the loan referred to in that sub-paragraph shall also be a qualifying lender for the purposes of the principal section and Parts I to III of this Schedule.