PART IX ANNUAL PAYMENTS AND INTEREST

Mortgage interest relief at source

369 Mortgage interest payable under deduction of tax.

C2C11

M1If 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 F1the applicable percentage thereof.

F21A

In subsection (1) above “the applicable percentage” means F323 per cent..

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.

F43

The following payments, that is to say—

a

payments of relevant loan interest to which this section applies, and

b

payments which would be such payments but for section 373(5),

shall not be allowable as deductions for any purpose of the Income Tax Acts except in so far as they fall to be treated as such payments by virtue only of section 375(2) and would be allowable apart from this subsection.

6

M2Any person by whom a payment of relevant loan interest to which this section applies is received shall be entitled to recover from the Board, in accordance with regulations, an amount 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.

F57

The following provisions of the Management Act, namely—

F6a

section 29(1)(c) (excessive relief) as it has effect apart from section 29(2) to (10) of that Act;

b

section 30 (tax repaid in error etc.) F7apart from subsection (1B) ,

c

F8section 86 (interest), and

d

section 95 (incorrect return or accounts),

shall apply in relation to an amount which is paid to any person by the Board as an amount recoverable in accordance with regulations made by virtue of subsection (6) above but to which that person is not entitled as if it were income tax which ought not to have been repaid and, where that amount was claimed by that person, as if it had been repaid F9as respects a chargeable period as a relief which was not due.

F108

In the application of section 86 of the Management Act by virtue of subsection (7) above in relation to sums due and payable by virtue of an assessment made for the whole or part of a year of assessment (“the relevant year of assessment”) under section 29(1)(c) or 30 of that Act, as applied by that subsection, the relevant date—

a

is 1st January in the relevant year of assessment in a case where the person falling within subsection (6) above has made a relevant interim claim; and

b

in any other case, is the later of the following dates, that is to say—

i

1st January in the relevant year of assessment; or

ii

the date of the making of the payment by the Board which gives rise to the assessment.

9

In this section—

  • financial year”, in relation to any person, means a financial year of that person for the purposes of the relevant regulations;

  • interim claim” means an interim claim within the meaning of the relevant regulations;

  • relevant interim claim” means, in relation to an assessment made for a period coterminous with, or falling wholly within, a person’s financial year, an interim claim made for a period falling wholly or partly within that financial year; and

  • the relevant regulations” means regulations made under section 378(3) for the purposes of subsection (6) above.

370 Relevant loan interest.

1

M3Subject to this section and F11sections 373 to 376, in this Part “relevant loan interest” means interest which is paid and payable in the United Kingdom to a qualifying lender and to which subsection (2) F12. . . below applies.

2

Subject to subsection (4) below, this subsection applies to interest if, disregarding section 353(2) F13and any other provision applying to interest falling to be treated as relevant loan interest

a

it is interest falling within section F14. . . 365; and

b

apart F15(where applicable) from section F14. . . 365(3), the whole of the interest F16would be eligible for relief under section 353;F17. . .

c

F17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

F18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

F18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

M4In determining whether subsection (2) above applies to any interest, F19section 365 shall have effect as if the words “or the Republic of Ireland” were omitted.

6

F18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F206A

F21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

F18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F22371 Second loans.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

372 Home improvement loans.

F23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

373 Loans in excess of the qualifying maximum, and joint borrowers.

1

M5The provisions of this section have effect in relation to a loan where, by virtue of F24. . . section 365(3), only part of the interest on the loan would (apart from section 353(2)) be eligible for relief under section 353; and in this section any such loan is referred to as a “limited loan”.

2

None of the interest on a limited loan is relevant loan interest unless—

a

the loan is made on or after 6th April 1987; 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 limited loans of a description which includes that limited loan brought within the tax deduction scheme.

3

F25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

F25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

M6Where the condition in paragraph (a) or (b) of subsection (2) above is fulfilled F26. . . only so much of the interest as (apart from section 353(2)) would be eligible for relief under section 353 is relevant loan interest.

6

M7Where 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 F27section 370 and this section.

7

In subsection (6) above references to the borrower’s husband or wife do not include references to a separated husband or wife F28. . . .

374 Conditions for application of section 369.

1

M8Section 369 does not apply to any relevant loan interest unless—

a

in the case of a loan of a description specified by regulations for the purposes of this 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

F29. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

d

M9the loan to which the interest relates is of a description specified by regulations for the purposes of this paragraph and was made—

i

if sub-paragraph (2) of paragraph 2 of Schedule 7 to the Finance Act 1982 applied to interest on the loan which became due on or after a date earlier than 6th April 1983, being a date specified by the Board in pursuance of sub-paragraph (5) of that paragraph, before that earlier date; or

ii

if the qualifying lender is a building society or a local authority, before 1st April 1983; or

iii

if sub-paragraphs (i) and (ii) above do not apply and the interest falls within section 370(2), before 6th April 1983.

2

M10Where notice has been given as mentioned in paragraph (a) or (b) of subsection (1) above, section 369 applies to any relevant loan interest to which the notice relates and which becomes due on or after the relevant date, as defined by subsection (3) below; and in a case falling within paragraph F30. . . (d) of subsection (1) above, section 369 applies to the relevant loan interest referred to in that paragraph.

3

In subsection (2) above “the relevant date” means—

a

in the case of a notice under subsection (1)(a) above, the date the notice is given, and

b

in the case of a notice under subsection (1)(b) above, 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).

374AF61 Interest which never has been relevant loan interest etc.

1

This section applies where, in the case of any loan, interest on the loan never has been relevant loan interest or the borrower never has been a qualifying borrower.

2

Without prejudice to subsection (3) below, in relation to a payment of interest—

a

as respects which either of the conditions mentioned in paragraphs (a) and (b) of section 374(1) is fulfilled, and

b

from which a deduction was made as mentioned in section 369(1),

section 369 shall have effect as if the payment of interest were a payment of relevant loan interest made by a qualifying borrower.

3

Nothing in subsection (2) above shall be taken as regards the borrower as entitling him to make any deduction or to retain any amount deducted and, accordingly, where any amount has been deducted, he shall be liable to make good that amount and an officer of the Board may make such assessments as may in his judgment be required for recovering that amount.

4

The Management Act shall apply to an assessment under subsection (3) above as if it were an assessment to income tax for the year of assessment in which the deduction was made F31. . . .

5

If the borrower fraudulently or negligently makes any false statement or representation in connection with the making of any deduction, he shall be liable to a penalty not exceeding the amount deducted.

375 Interest ceasing to be relevant loan interest, etc.

1

M11If 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 the fact to the lender.

2

Without prejudice to subsection (3) below, in relation to a payment of interest—

a

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

F32aa

as respects which any of the conditions mentioned in section 374(1) is fulfilled, and

b

from which a deduction was made as mentioned in section 369(1),

section 369 shall have effect as if the payment were a payment of relevant loan interest made by a qualifying borrower.

3

Nothing in subsection (2) above F33shall be taken as regards the borrower as entitling him to any deduction or to retain any amount deducted and, accordingly, where any amount that has been deducted exceeds the amount which ought to have been deducted, 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.

F344

The Management Act shall apply to an assessment under subsection (3) above F35as if it were an assessment to income tax for the year of assessment in which the deduction was made.

4A

If there is any unreasonable delay in the giving of a notice under subsection (1) above, the borrower shall be liable to a penalty not exceeding so much of the aggregate amount that he is liable to make good under subsection (3) above as is attributable to that delay.

5

M12If, as a result of receiving a notice under subsection (1) 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.

6

M13Where it appears to the Board that any of the provisions of sections 370 to 373 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.

7

Section 369 shall not apply to any payment of relevant loan interest of a description to which a notice under subsection (6) 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.

8

M14In any case where—

a

section 369 applies to any relevant loan interest by virtue of a notice under section 374(1)(b), 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 section 369 if it had been made after the relevant date.

F368A

In any case where an amount to which a person is not entitled is paid to him by the Board in pursuance of regulations made by virtue of subsection (8) above, regulations may—

a

provide for an officer of the Board to make such assessments as may in his judgment be required for recovering that amount from that person; and

b

make provision corresponding to that made by subsection (4A) above and subsections (4) and (5) of section 374A.

F378B

Subsections (1), (5) and (6) above shall not apply where interest ceases to be relevant loan interest by virtue of section 38 of the Finance Act 1999.

9

F38. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10

F38. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

375AF62 Option to deduct interest for the purposes of Schedule A.

F39. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

376 Qualifying borrowers and qualifying lenders.

1

M15Subject to subsection (2) below, an individual is 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 F40an office or employment which would, but for some special exemption or immunity from tax, be a taxable employment under Part 2 of ITEPA 2003 (as defined by section 66(3) of that Act), the borrower is not a qualifying borrower.

3

In subsection (2) above references to the borrower’s husband or wife do not include references to a separated husband or wife F41. . . .

4

M16The following bodies are qualifying lenders:—

a

a building society;

b

a local authority;

c

the Bank of England;

d

F42. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F43e

a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to effect or carry out contracts of long-term insurance;

f

any company to which property and rights belonging to a trustee savings bank were transferred by section 3 of the M17Trustee Savings Bank Act 1985;

g

F44. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

h

a development corporation within the meaning of the M18New Towns Act 1981 or the M19New Towns (Scotland) Act 1968;

j

the Commission for the New Towns;

k

the Housing Corporation;

F45ka

the Secretary of State if the loan is made by him under section 79 of the M20Housing Associations Act 1985;

l

the Northern Ireland Housing Executive;

m

the Scottish Special Housing Association;

n

F46. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

o

the Church of England Pensions Board;

F47p

any body which is for the time being registered under section 376A.

F484A

F49. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

F50. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F63376A The register of qualifying lenders.

1

The Board shall maintain, and publish in such manner as they consider appropriate, a register for the purposes of section 376(4).

F521A

The following are entitled to be registered—

a

a person who has permission under Part 4 of the Financial Services and Markets Act 2000—

i

to accept deposits; or

ii

to effect or carry out contracts of general insurance;

b

a 90 per cent subsidiary of a person mentioned in—

i

section 376(4)(e); or

ii

paragraph (a) above;

c

any other body whose activities and objects appear to the Board to qualify it for registration.

2

If the Board are satisfied that an applicant for registration is entitled to be registered, they may register the applicant generally or in relation to any description of loan specified in the register, with effect from such date as may be so specified; and a body which is so registered shall become a qualifying lender in accordance with the terms of its registration.

3

The registration of any body may be varied by the Board—

a

where it is general, by providing for it to be in relation to a specified description of loan, or

b

where it is in relation to a specified description of loan, by removing or varying the reference to that description of loan,

and where they do so, they shall give the body written notice of the variation and of the date from which it is to have effect.

4

If it appears to the Board at any time that a body which is registered under this section would not be entitled to be registered if it applied for registration at that time, the Board may by written notice given to the body cancel its registration with effect from such date as may be specified in the notice.

5

The date specified in a notice under subsection (3) or (4) above shall not be earlier than the end of the period of 30 days beginning with the date on which the notice is served.

6

Any body which is aggrieved by the failure of the Board to register it under this section, or by the variation or cancellation of its registration, may, by notice given to the Board before the end of the period of 30 days beginning with the date on which the body is notified of the Board’s decision, require the matter to be determined by the Special Commissioners; and the Special Commissioners shall thereupon hear and determine the matter in like manner as an appeal.

377 Variation of terms of repayment of certain loans.

F53. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

378 Supplementary regulations. C3

M211

F54. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

F54. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

The Board may by regulations make provision—

a

for the purposes of any provision of sections 369 to F55376A which relates to any matter or thing to be specified by or done in accordance with regulations;

b

for the application of those sections in relation to loan interest paid by personal representatives and trustees;

c

with respect to the furnishing of information by borrowers or lenders, including, in the case of lenders, the inspection of books, documents and other records on behalf of the Board;

d

for, and with respect to, appeals to the General Commissioners or the Special Commissioners against the refusal of the Board to issue a notice under section 374(1)(b) or the issue of a notice under section 375(6) or (7); and

e

generally for giving effect to sections 369 to F55376A.

4

F54. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

379

In sections 369 to 378—

  • F56“contracts of general insurance” means contracts which fall within Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and “contracts of long-term insurance” means contracts which fall within Part II of that Schedule;

  • prescribedF57. . . means prescribed by the Board;

  • qualifying borrower” has the meaning given by section 376(1) to (3);

  • qualifying lender” has the meaning given by section 376(4) F58. . . ;

  • regulationsF59 . . . means regulations made by the Board under section 378;

  • relevant loan interest” has the meaning given by section 370(1);

  • F60separated” means separated under an order of a court of competent jurisdiction or by deed of separation or in such circumstances that the separation is likely to be permanent.