Modifications etc. (not altering text)
C1 See—1979(C) s.122—election to take capital gain or loss into account when asset appropriated to stock in trade.1989 ss.67-74—employee share ownership trusts.Banking Act 1987 (c.22) s.66—contributions to the Deposit Protection Fund.
(1)M1Subject to subsection (5) below, in computing the [F1profits] to be charged under Case I or II of Schedule D there may be deducted the incidental costs of obtaining finance by means of a qualifying loan or the issue of qualifying loan stock or a qualifying security; and the incidental costs of obtaining finance by those means shall be treated for the purposes of section 75 as expenses of management.
(2)Subject to subsections (3) and (4) below, in this section—
(a)M2 “a qualifying loan” and “qualifying loan stock” mean a loan or loan stock the interest on which is deductible—
(i)in computing for tax purposes the [F1profits] of the person by whom the incidental costs in question are incurred; or
(ii)under section 338 against his total profits; and
(b)M3 “qualifying security” means any deep discount security, as defined by paragraph 1 of Schedule 4, in respect of which the income elements, as defined by paragraph 4 of that Schedule, are deductible under paragraph 5(1) of that Schedule in computing the total profits of the company by which the incidental costs in question are incurred.
(3)M4Except as provided by subsection (4) below, a loan or loan stock which carries the right of conversion into or to the acquisition of—
(a)shares, or
(b)other securities not being a qualifying loan or qualifying loan stock,
is not a qualifying loan or qualifying loan stock if that right is exercisable before the expiry of the period of three years from the date when the loan was obtained or the stock issued.
(4)M5A loan or loan stock—
(a)which carries such a right as is referred to in subsection (3) above, and
(b)which by virtue of that subsection is not a qualifying loan or qualifying loan stock,
shall nevertheless be regarded as a qualifying loan or qualifying loan stock, as the case may be, if the right is not, or is not wholly, exercised before the expiry of the period of three years from the date when the loan was obtained or the stock was issued.
(5)For the purposes of the application of subsection (1) above in relation to a loan or loan stock which is a qualifying loan or qualifying loan stock by virtue of subsection (4) above—
(a)if the right referred to in subsection (4)(a) above is exercised as to part of the loan or stock within the period referred to in that subsection, only that proportion of the incidental costs of obtaining finance which corresponds to the proportion of the stock in respect of which the right is not exercised within that period shall be taken into account; and
(b)in so far as any of the incidental costs of obtaining finance are incurred before the expiry of the period referred to in subsection (4) above they shall be treated as incurred immediately after that period expires.
(6)M6In this section “the incidental costs of obtaining finance” means expenditure on fees, commissions, advertising, printing and other incidental matters (but not including stamp duty), being expenditure wholly and exclusively incurred for the purpose of obtaining the finance (whether or not it is in fact obtained), or of providing security for it or of repaying it.
(7)This section shall not be construed as affording relief—
(a)for any sums paid in consequence of, or for obtaining protection against, losses resulting from changes in the rate of exchange between different currencies; or
(b)for the cost of repaying a loan or loan stock or a qualifying security so far as attributable to its being repayable at a premium or to its having been obtained or issued at a discount.
[F2(8)This section shall not apply for the purposes of corporation tax.]
Textual Amendments
F1Words in s. 77(1)(2)(a)(i) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a)(b), Sch. 7 para. 1
F2S. 77(8) inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 9 (with Sch. 15)
Marginal Citations
M1SOURCE-1980 s. 38(1); 1984 s. 43(1), Sch. 9 para. 3(6)
M2SOURCE-1980 s. 38(2); 1984 s. 43(1)
M3SOURCE-1984 Sch. 9 para. 3(7)
M4SOURCE-1980 S. 38(3); 1984 S. 43(1)
M5SOURCE-1980 s. 38(3A), (3B); 1984 s. 43(2)
M6SOURCE-1980 s. 38(4), (5); 1984 Sch. 9 para. 3(6)