Income Tax (Trading and Other Income) Act 2005

418 Relief where borrowers liable as settlors

(1) Relief is given under this section if the person to whom the loan or advance was made—

(a) is liable for the tax year for income tax on a sum in respect of it under Chapter 5 of Part 5 as a result of section 633 (capital sums paid to settlor by trustees of settlement), or

(b) has been so liable for any previous tax year.

(2) If the total amount previously charged (see subsection (4)) equals or exceeds the total amount released (see subsection (6)), tax is not charged under this Chapter.

(3) If the total amount released exceeds the total amount previously charged, tax is charged under this Chapter on the excess, grossed up by reference to the dividend ordinary rate.

(4) In this section “the total amount previously charged” means the total of—

(a) the sums included in the person’s income under section 633 in respect of the loan or advance for the tax year or for previous tax years, and

(b) the amounts charged under this Chapter in respect of the loan or advance for previous tax years.

(5) For the purposes of subsection (4)(a), section 640(1) (which requires the grossing up of the sums treated as paid to the settlor by reference to the rate applicable to trusts) is ignored.

(6) In this section “the total amount released” means the total amount released or written off in respect of the loan or advance in the tax year and previous tax years.