Finance Act 1995

2 After section 338 of that Act there shall be inserted the following section—

“338A Charges on income: loans to buy land.

(1) Subject to the following provisions of this section, interest shall qualify for treatment in accordance with section 338(6)(d) as a charge on income if—

(a) at the time when the interest is paid the company in question owns an estate or interest in land, or the property in a caravan or house-boat, in the United Kingdom or the Republic of Ireland;

(b) the interest is paid on a loan to defray money applied—

(i) in purchasing that estate, interest or property, or another estate, interest or property absorbed into, or given up to obtain, that estate, interest or property;

(ii) in improving or developing the land, or buildings on the land; or

(iii) in paying off another loan in a case in which interest on that other loan would have qualified under this section for treatment as a charge on income had the loan not been paid off (and on the assumption, if the loan was free of interest, that it carried interest);

(c) the land, caravan or house-boat—

(i) is occupied by the company and used as the only or main residence of an individual;

(ii) is occupied by the company and used otherwise than as a residence; or

(iii) is, in any period of 52 weeks comprising the time at which the interest is payable, let at a commercial rent for more than 26 weeks and, when not so let, either available for letting at such a rent or occupied and used as mentioned in sub-paragraph (i) or (ii) above;

and

(d) the interest is not interest incurred by overdrawing an account or by debiting the account of any person as the holder of a credit card or under similar arrangements.

(2) Subsections (2) and (7) of section 354 shall have effect in relation to subsection (1) above as they have effect in relation to subsection (1) of that section.

(3) Interest shall qualify under this section for treatment as a charge on income by reference to any land, caravan or house-boat which is being used as the only or main residence of an individual to the extent only that the amount on which it is payable does not exceed the following limit, that is to say, the qualifying maximum for the year of assessment in which the payment is made reduced by the amount on which interest is payable by the company under any earlier loans so far as they—

(a) are loans the interest on which qualifies under this section for treatment as a charge on income; and

(b) fall within subsection (1)(b) above in respect of the same land, caravan or house-boat.

(4) Accordingly—

(a) if the amount on which interest is payable under any loan exceeds the limit specified in subsection (3) above, so much only of the interest that would otherwise qualify under this section shall so qualify as bears to the whole of that interest the same proportion as that part of that amount that does not exceed the limit bears to the whole of that amount; and

(b) if the amount on which interest is payable under the earlier loans mentioned in that subsection is equal to or exceeds the qualifying maximum for the year of assessment in which the interest is paid, none of the interest on the later loan shall qualify under this section for treatment as a charge on income.

(5) Subsections (1A) and (2) of section 355 shall have effect for the purposes of this section in relation to the condition in paragraph (c) of subsection (1) above as they have effect in relation to the condition referred to in section 355(1A)(a).

(6) Interest shall not qualify under this section for treatment as a charge on income by reference to any case in which—

(a) the land, caravan or house-boat is used as the only or main residence of an individual, and

(b) the interest is paid on a home improvement loan,

unless the loan was made before 6th April 1988; and subsections (2B) and (2C) of section 355 shall apply for the purposes of this subsection as they apply for the purposes of subsection (2A) of that section.

(7) Interest shall not qualify by virtue of subsection (1)(b)(i) above for treatment as a charge on income—

(a) where the purchaser has, since 15th April 1969, disposed of an estate or interest in the land, or the property in the caravan or house-boat, in question and it appears that the main purpose of the disposal and purchase was to obtain relief in respect of interest on the loan or to allow interest on the loan to be treated as a charge on income; or

(b) where the purchaser is directly or indirectly purchasing from a person who is connected with him and the price substantially exceeds the value of what is acquired;

and interest shall not qualify by virtue of subsection (1)(b)(ii) above for such treatment where the money spent is received directly or indirectly by a person connected with the person spending it and substantially exceeds the value of the work done.

(8) For the purposes of subsection (7) above one person is connected with another if he is so connected within the terms of section 839.

(9) In this section—

• “caravan” and “house-boat” have the same meanings as are given to them for the purposes of sections 354 to 366 by subsection (1) of section 367; and

• “the qualifying maximum” has the same meaning as is given to it for the purposes of sections 356A to 357 by subsection (5) of that section;

and subsections (2) to (4) of section 367 shall apply with the necessary modifications for the determination of any question whether interest qualifies under this section for treatment as a charge on income as they apply for the determination of any question whether interest is eligible for relief under section 353 by virtue of section 354.

(10) References in this section to an estate or interest do not include references—

(a) to a rentcharge or, in Scotland, a superiority or the interest of a creditor in a contract of ground annual; or

(b) to the interest of a chargee or mortgagee or, in Scotland, the interest of a creditor in a charge or security of any kind over land.”