PART IX ANNUAL PAYMENTS AND INTEREST

Mortgage interest relief at source

369 Mortgage interest payable under deduction of tax.

(1)

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 income tax thereon at the basic rate for the year of assessment in which the payment becomes due.

(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)

F1M2Subject to subsection (5A) below 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 (4) below, to the deduction which, in computing his total income F2(otherwise than for the purposes of excess liability), falls to be made on account of those payments.

F3(3A)

In computing for the purposes of excess liability the total income of a person for any year of assessment, no deduction shall be allowed in respect of any amount of relevant loan interest to which this section applies.

(3B)

In this section “excess liability” means the excess of liability to income tax over what it would be if all income tax F4not chargeable at the lower rate were charged at the basic rate, to the exclusion of any higher rate.

(4)

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 (3) above.

(5)

In subsection (4) above “relevant personal relief” means any relief to which the borrower concerned is entitled under Chapter I of Part VII other than—

(a)

relief under section 266 which is given either by deduction by virtue of subsection (5) of that section or in accordance with paragraph 6 of Schedule 14; and

(b)

relief under section 273;

and for the purposes of subsection (4) above the full amount of those reliefs means the amount of them determined without regard to section 276.

F5(5A)

In any case where—

(a)

payments of relevant loan interest to which this section applies become due in any year, and

(b)

the notional lower rate income of the borrower for that year exceeds the actual lower rate income of the borrower for that year,

the borrower shall be charged with tax at the lower rate (rather than the basic rate) for that year on so much of the income on which he is chargeable to tax by virtue of subsection (3) above as is equal to the excess.

(5B)

For the purposes of subsection (5A) above—

(a)

the notional lower rate income of a borrower for a year is the amount of his total income for the year which would be chargeable at the lower rate if the relevant deduction were not made;

(b)

the actual lower rate income of a borrower for a year is the amount of his total income for the year which is actually chargeable at the lower rate;

and the relevant deduction is the deduction which, in computing the borrower’s total income otherwise than for the purposes of excess liability, falls to be made on account of the payments referred to in subsection (5A)(a) above.

(6)

M3Any 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.