1989 No. 1297

INCOME TAX

INHERITANCE TAX

TAXES

The Taxes (Interest Rate) Regulations 1989

Made27th July 1989

Laid before the House of Commons28th July 1989

Coming into force18th August 1989

The Treasury, in exercise of the powers conferred on them by section 178 of the Finance Act 19891, hereby make the following Regulations:

Citation and commencement1.

These Regulations may be cited as the Taxes (Interest Rate) Regulations 1989 and shall come into force on 18th August 1989.

Interpretation2.

(1)

In these Regulations unless the context otherwise requires–

“established rate” means–

(a)

on the coming into force of these Regulations, 14 per cent. per annum; and

(b)

in relation to any date after the first reference date after the coming into force of these Regulations, the reference rate found on the immediately preceding reference date;

“operative date” means the sixth day of each month;

“reference date” means the day of each month which is the twelfth working day before the sixth day of the following month;

“section 178” means section 178 of the Finance Act 1989;

“working day” means any day other than a non-business day within the meaning of section 92 of the Bills of Exchange Act 18822.

(2)

In these Regulations the reference rate found on a reference date is the percentage per annum found by averaging the base lending rates at close of business on that date of–

(a)

Bank of Scotland,

(b)

Barclays Bank p.l.c.,

(c)

Lloyds Bank p.l.c.,

(d)

Midland Bank p.l.c.,

(e)

National Westminster Bank p.l.c., and

(f)

The Royal Bank of Scotland p.l.c.,

and, if the result is not a whole number, rounding the result to the nearest such number, with any result midway between two whole numbers rounded down.

Applicable rate of interest on unpaid tax, tax repaid and repayment supplement3.

(1)

For the purposes of–

(a)

sections 86, 86A, 87 and 88 of the Taxes Management Act 19703,

(b)

paragraph 3 of Schedule 16A to the Finance Act 19734;

(c)

paragraphs 15 and 16 of Schedule 2, and paragraph 8 of Schedule 5, to the Oil Taxation Act 19755,

(d)

section 47 of the Finance (No. 2) Act 19756,

(e)

paragraph 59 of Schedule 8 to the Development Land Tax Act 19767,

(f)

section 92 of the Finance Act 19868, and

(g)

sections 824 and 825 of, and paragraph 3 of Schedule 19A to, the Income and Corporation Taxes Act 19889,

the rate applicable under section 178 shall, subject to paragraph (2), be 12.25 per cent. per annum.

(2)

Where, on a reference date after the coming into force of these Regulations, the reference rate found on that date differs from the established rate, the rate applicable under section 178 for the purposes of the enactments referred to in paragraph (1) shall, on and after the next operative date, be the percentage per annum found by applying the formula specified in paragraph (3) and, if the result is not a multiple of one-quarter, rounding the result down to the nearest amount which is such a multiple.

(3)

The formula specified in this paragraph is–

(RR + 2.5) \frac{(100 - BR),}{100}

where RR is the reference rate referred to in paragraph (2) and BR is the percentage at which income tax at the basic rate is charged for the year of assessment in which the reference date referred to in that paragraph falls.

Applicable rate of interest on unpaid inheritance tax, capital transfer tax and estate duty4.

(1)

For the purposes of–

(a)

section 8(9) of the Finance Act 189410,

(b)

section 18 of the Finance Act 189611,

(c)

section 61(5) of the Finance Act (1909–10) Act 191012,

(d)

section 17(3) of the Law of Property Act 192513,

(e)

section 73(6) of the Land Registration Act 192514, and

(f)

sections 233 and 236(3) and (4) of the Inheritance Tax Act 198415,

the rate applicable under section 178 shall, subject to paragraph (2), be 11 per cent. per annum.

(2)

Where, on a reference date after the coming into force of these Regulations, the reference rate found on that date differs from the established rate, the rate applicable under section 178 for the purposes of the enactments referred to in paragraph (1) shall, on and after the next operative date, be the percentage per annum found by applying the formula specified in paragraph (3) and, if the result is not a whole number, rounding the result down to the nearest such number.

(3)

The formula specified in this paragraph is–

(RR + 2) \frac{(100 - BR)}{100} - 1,

where RR is the reference rate referred to in paragraph (2) and BR is the percentage at which income tax at the basic rate is charged for the year of assessment in which the reference date referred to in that paragraph falls.

Applicable rate of official rate of interest5.

(1)

For the purpose of section 160 of the Income and Corporation Taxes Act 198816 the rate applicable under section 178 shall, subject to paragraph (2), be 15.5 per cent. per annum.

(2)

Where, on a reference date after the coming into force of these Regulations, the reference rate found on that date differs from the established rate, the rate applicable under section 178 for the purpose of section 160 of the Income and Corporation Taxes Act 1988, shall, on and after the next operative date, be the percentage per annum found by applying the formula specified in paragraph (3).

(3)

The formula specified in this paragraph is–

RR + 1.5,

where RR is the reference rate referred to in paragraph (2).

Effect of change in applicable rate6.

Where the rate applicable under section 178 for the purpose of any of the enactments referred to in regulation 3(1), 4(1) or 5(1) changes on an operative date by virtue of these Regulations, that change shall have effect for periods beginning on or after the operative date in relation to interest running from before that date as well as from or from after that date.

Kenneth Carlisle

David Lightbown

Two of the Lords Commissioners of Her Majesty’s Treasury

27th July 1989

(This note is not part of the Regulations)

These Regulations, made under powers contained in section 178 of the Finance Act 1989 (“section 178”), specify the interest rates applicable under that section for periods beginning on or after 18th August 1989.

The Regulations make provision for the interest rates applicable under section 178 to change on the sixth day of any month, in accordance with formulae specified in the Regulations, when the rounded average of the base lending rates of six clearing banks at the close of business 12 working days prior to that date changes from the rounded average of those rates at the close of busines on the corresponding day in the previous month. (The base lending rates of the banks in question are published each day inThe Financial Times.) Section 178 provides that any such change is to be specified by order of the Board of Inland Revenue. Details of the rates so specified will be available form the Public Enquiry Room, Somerset House, Strand, London WC2R 1LB.

Regulation 1 provides for the title to and commencement of the Regulations.

Regulation 2 contains definitions.

Regulation 3 specifies the interest rate applicable under section 178 in relation to unpaid income tax, surtax, capital gains tax, corporation tax (including advance corporation tax), petroleum revenue tax and development land tax, repayments of petroleum revenue tax, overpaid development land tax and stamp duty reserve tax and repayment supplement. It makes provision for changes in the applicable interest rate and for the formula to be used in calculating the new rate.

Regulation 4 specifies the interest rate applicable under section 178 in relation to capital taxes and makes provision for changes in the applicable rate and for the formula to be used in calculating the new rate.

Regulation 5 specifies the interest rate applicable under section 178 in relation to the charge to income tax on beneficial loans and more expensive living accommodation (the official rate of interest) and makes provision for changes in the applicable rate and for the formula to be used in calculating the new rate.

Regulation 6 provides that changes in interest rates by virtue of the Regulations have effect in relation to interest running from before the date the change takes effect as well as in relation to interest running from, or from a date after, that date.