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39 1997

TAXES CONSOLIDATION ACT, 1997

CHAPTER 3

Principal provisions relating to the payment of interest

Relief for interest paid on certain home loans.

[FA97 s145]

244. —(1) (a) In this section—

dependent relative”, in relation to an individual, means any of the persons mentioned in paragraph (a) or (b) of section 466 (2) in respect of whom the individual is entitled to a deduction under that section;

loan” means any loan or advance or any other arrangement whatever by virtue of which interest is paid or payable;

qualifying interest”, in relation to an individual and a year of assessment, means the amount of interest paid by the individual in the year of assessment in respect of a qualifying loan;

qualifying loan”, in relation to an individual, means a loan or loans which, without having been used for any other purpose, is or are used by the individual solely for the purpose of defraying money employed in the purchase, repair, development or improvement of a qualifying residence or in paying off another loan or loans used for such purpose;

qualifying residence”, in relation to an individual, means a residential premises situated in the State, Northern Ireland or Great Britain, which is used as the sole or main residence of—

(i) the individual,

(ii) a former or separated spouse of the individual, or

(iii) a person who in relation to the individual is a dependent relative, and which is, where the residential premises is provided by the individual, provided rent-free and without any other consideration;

relievable interest”, in relation to an individual and a year of assessment, means an amount equal to that part of the qualifying interest paid by the individual in the year of assessment which is determined by the formula—

(I × 80%) − M

where—

I is—

(i) in the case of an individual assessed to tax for the year of assessment in accordance with section 1017 , the amount of qualifying interest paid by that individual in the year of assessment or, if less, £5,000,

(ii) in the case of a widowed individual, the amount of qualifying interest paid by that individual in the year of assessment or, if less, £3,600,

(iii) in the case of any other individual, the amount of qualifying interest paid by that individual in the year of assessment or, if less, £2,500, and

M is—

(i) in the case of an individual assessed to tax for the year of assessment in accordance with section 1017 , £200 or, if less, the amount of qualifying interest paid by that individual in the year of assessment,

(ii) in the case of any other individual, £100 or, if less, the amount of qualifying interest paid by that individual in the year of assessment,

but, notwithstanding the preceding provisions of this definition and subject to paragraph (c), as respects the first 5 years of assessment for which there is an entitlement to relief under this section in respect of a qualifying loan, “relievable interest”, in relation to an individual and a year of assessment, shall mean an amount equal to that part of the qualifying interest paid by the individual in the year of assessment which is determined by the formula—

(I × 100%)

where I has the same meaning as in the preceding provisions of this definition;

residential premises” means—

(i) a building or part of a building used, or suitable for use, as a dwelling, and

(ii) land which the occupier of a building or part of a building used as a dwelling has for the occupier's own occupation and enjoyment with that building or that part of a building as its garden or grounds of an ornamental nature;

separated” means separated under an order of a court of competent jurisdiction or by deed of separation or in such circumstances that the separation is likely to be permanent.

(b) For the purposes of this section, in the case of an individual assessed to tax for a year of assessment in accordance with section 1017 , any payment of qualifying interest made by the individual's spouse, in respect of which the individual's spouse would have been entitled to relief under this section if that spouse were assessed to tax for the year of assessment in accordance with section 1016 (apart from subsection (2) of that section) shall be deemed to have been made by the individual.

(c) For the purposes of the second-mentioned formula in the definition of “relievable interest”, the number of years of assessment in which the amount of relievable interest is to be determined in accordance with that formula shall be reduced by one year of assessment for each year of assessment in which an individual was entitled to relief for a year of assessment before the year 1997-98 under section 76(1) or 496 of, or paragraph 1(2) of Part III of Schedule 6 to, the Income Tax Act, 1967 .

(2) (a) In this subsection, “appropriate percentage”, in relation to a year of assessment means a percentage equal to the standard rate of tax for that year.

(b) Where an individual for a year of assessment proves that in the year of assessment such individual paid an amount of qualifying interest, then, the income tax to be charged, other than in accordance with section 16 (2), on such individual for that year of assessment shall be reduced by an amount which is the lesser of—

(i) the amount equal to the appropriate percentage of the relievable interest, and

(ii) the amount which reduces that income tax to nil.

(c) Except for the purposes of sections 187 and 188 , no account shall be taken of relievable interest in calculating the total income of the individual by whom the relievable interest is paid.

(3) (a) Where the amount of relievable interest is determined in accordance with the second-mentioned formula in the definition of “relievable interest”, then, notwithstanding any other provision of the Tax Acts, in the case of an individual who has elected or could be deemed to have duly elected to be assessed to tax for the year of assessment in accordance with section 1017 , where either—

(i) the individual, or

(ii) the individual's spouse,

was previously entitled to relief under this section or under section 76(1) or 496 of, or paragraph 1 (2) of Part III of Schedule 6 to, the Income Tax Act, 1967 , and the other person was not so entitled—

(I) the relief to be given under this section, other than that part of the relief (in this subsection referred to as “the additional relief”) which is represented by the difference between the relievable interest and the amount which would have been the amount of the relievable interest had the first-mentioned formula in that definition applied, shall be treated as given in equal proportions to the individual and that individual's spouse for that year of assessment, and

(II) the additional relief shall be reduced by 50 per cent and the additional relief, as so reduced, shall be given only to the person who was not previously entitled to relief under this section or under section 76(1) or 496 of, or paragraph 1(2) of Part III of Schedule 6 to, the Income Tax Act, 1967 .

(b) Paragraph (a) shall apply notwithstanding that—

(i) section 1023 may have applied for the year of assessment, and

(ii) the payments in respect of which relief is given may not have been made in equal proportions.

(4) (a) Notwithstanding anything in this section, a loan shall not be a qualifying loan, in relation to an individual, if it is used for the purpose of defraying money applied in—

(i) the purchase of a residential premises or any interest in such premises from an individual who is the spouse of the purchaser,

(ii) the purchase of a residential premises or any interest in such premises if, at any time after the 25th day of March, 1982, that premises or interest was disposed of by the purchaser or by his or her spouse or if any interest which is reversionary to the interest purchased was so disposed of after that date, or

(iii) the purchase, repair, development or improvement of a residential premises, and the person who, directly or indirectly, received the money is connected with the individual and it appears that the purchase price of the premises substantially exceeds the value of what is acquired or, as the case may be, the cost of the repair, development or improvement substantially exceeds the value of the work done.

(b) Subparagraphs (i) and (ii) of paragraph (a) shall not apply in the case of a husband and wife who are separated.

(5) Where an individual acquires a new sole or main residence but does not dispose of the previous sole or main residence owned by the individual and it is shown to the satisfaction of the inspector that it was the individual's intention, at the time of the acquisition of the new sole or main residence, to dispose of the previous sole or main residence and that the individual has taken and continues to take all reasonable steps necessary to dispose of it, the previous sole or main residence shall be treated as a qualifying residence, in relation to the individual, for the period of 12 months commencing on the date of the acquisition of the new sole or main residence.

(6) (a) In this subsection, “personal representative” has the same meaning as in section 799 .

(b) Where any interest paid on a loan used for a purpose mentioned in the definition of “qualifying loan” by persons as the personal representatives of a deceased person or as trustees of a settlement made by the will of a deceased person would, on the assumptions stated in paragraph (c), be eligible for relief under this section and, in a case where the condition stated in that paragraph applies, that condition is satisfied, that interest shall be so eligible notwithstanding the preceding provisions of this section.

(c) For the purposes of paragraph (b), it shall be assumed that the deceased person would have survived and been the borrower and if, at the time of the person's death, the residential premises was used as that person's sole or main residence, it shall be further assumed that the person would have continued so to use it and the following condition shall then apply, namely, that the residential premises was, at the time the interest was paid, used as the sole or main residence of the deceased's widow or widower or of any dependent relative of the deceased.

Relief for certain bridging loans.

[FA74 s32; FA97 s146(1) and Sch9 PtI par8(1)]

245. —(1) Where a person—

(a) disposes of such person's only or main residence and acquires another residence for use as such person's only or main residence,

(b) obtains a loan, the proceeds of which are used to defray in whole or in part the cost of the acquisition or the disposal or both, and

(c) pays interest on the loan (and on any subsequent loan the proceeds of which are used to repay in whole or in part the first-mentioned loan or any such subsequent loan or to pay interest on any such loan) in respect of the period of 12 months from the date of the making of the first-mentioned loan,

such person shall be entitled on proof of those facts to a reduction in tax under section 244 on the amount of that interest as if no other interest had been paid by such person in respect of the period of 12 months from the date of the making of the first-mentioned loan.

(2) Subsection (1) shall not apply to a loan the proceeds of which are applied for some other purpose before being applied for the purpose specified in that subsection.

Interest payments by companies and to non-residents.

[FA74 s31; CTA76 s140(1) and Sch2 PtI par42; FA88 s38; FA96 s33(1) and s132(2) and Sch5 PtII; FA97 s36]

246. —(1) In this section—

company” means any body corporate;

relevant security” means a security issued by a company on or before the 31st day of December, 2005, on terms which oblige the company to redeem the security within a period of 15 years after the date on which the security was issued.

(2) Where any yearly interest charged with tax under Schedule D is paid—

(a) by a company, otherwise than when paid in a fiduciary or representative capacity, to a person whose usual place of abode is in the State, or

(b) by any person to another person whose usual place of abode is outside the State,

the person by or through whom the payment is made shall on making the payment deduct out of the payment a sum representing the amount of the tax on the payment at the standard rate in force at the time of the payment, and subsections (1) and (3) to (5) of section 238 shall apply to such payments as they apply to payments specified in subsection (2) of that section.

(3) Subsection (2) shall not apply to—

(a) interest paid in the State on an advance from a bank carrying on a bona fide banking business in the State,

(b) interest paid by such a bank in the ordinary course of such business,

(c) interest paid to a person whose usual place of abode is outside the State by—

(i) a company in the course of carrying on relevant trading operations within the meaning of section 445 or 446 , or

(ii) a specified collective investment undertaking within the meaning of section 734 ,

(d) interest paid by a company authorised by the Revenue Commissioners to pay interest without deduction of income tax,

(e) interest on any securities in respect of which the Minister for Finance has given a direction under section 36 ,

(f) interest paid without deduction of tax by virtue of section 700 , or

(g) interest which under section 437 is a distribution.

(4) In relation to interest paid in respect of a relevant security subsection (3)(c) shall apply—

(a) as if there were deleted from subsection (2) of section 445 “, and any certificate so given shall, unless it is revoked under subsection (4), (5) or (6), remain in force until the 31st day of December, 2005”, and

(b) as if there were deleted from subsection (2) of section 446 “, and any certificate so given shall, unless it is revoked under subsection (4), (5) or (6), remain in force until the 31st day of December, 2005”.

Relief to companies on loans applied in acquiring interest in other companies.

[FA74 s33 and s 35(4) and (5); CTA76 s140(1) and Sch2 PtI par43; FA96 s131(9)(a)]

247. —(1) (a) In this section and in sections 248 and 249

control” shall be construed in accordance with section 432 ;

material interest”, in relation to a company, means the beneficial ownership of, or the ability to control, directly or through the medium of a connected company or connected companies or by any other indirect means, more than 5 per cent of the ordinary share capital of the company.

(b) For the purposes of this section and sections 248 and 249 , a company shall be regarded as connected with another company if it would be so regarded for the purposes of the Tax Acts by virtue of section 10 and if it is a company referred to in subsection (2)(a).

(2) This section shall apply to a loan to a company (in this section and in section 249 (1) referred to as “the investing company”) to defray money applied—

(a) in acquiring any part of the ordinary share capital of—

(i) a company which exists wholly or mainly for the purpose of carrying on a trade or trades or a company whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D, or

(ii) a company whose business consists wholly or mainly of the holding of stocks, shares or securities of a company referred to in subparagraph (i),

(b) in lending to a company referred to in paragraph (a) money which is used wholly and exclusively for the purposes of the trade or business of the company or of a connected company, or

(c) in paying off another loan where relief could have been obtained under this section for interest on that other loan if it had not been paid off (on the assumption, if the loan was free of interest, that it carried interest).

(3) Relief shall be given in respect of any payment of the interest by the investing company on the loan if—

(a) when the interest is paid the investing company has a material interest in the company or in a connected company,

(b) during the period taken as a whole from the application of the proceeds of the loan until the interest was paid at least one director of the investing company was also a director of the company or of a connected company, and

(c) the investing company shows that in the period referred to in paragraph (b) it has not recovered any capital from the company or from a connected company apart from any amount taken into account under section 249 .

(4) Subsection (2) shall not apply to a loan unless it is made in connection with the application of the money and either on the occasion of its application or within what is in the circumstances a reasonable time from the application of the money, and that subsection shall not apply to a loan the proceeds of which are applied for some other purpose before being applied as described in that subsection.

(5) Interest eligible for relief under this section shall be deducted from or set off against the income of the borrower for the accounting period in which the interest is paid and tax shall be discharged or repaid accordingly, and such interest shall not be eligible for relief under any provision of the Tax Acts apart from this section.

Relief to individuals on loans applied in acquiring interest in companies.

[FA74 s34 and s35(4) and (5); FA92 s14(4)]

248. —(1) This section shall apply to a loan to an individual to defray money applied—

(a) in acquiring any part of the ordinary share capital of—

(i) a company which exists wholly or mainly for the purpose of carrying on a trade or trades or a company whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D, or

(ii) a company whose business consists wholly or mainly of the holding of stocks, shares or securities of a company referred to in subparagraph (i),

(b) in lending to a company referred to in paragraph (a) money which is used wholly and exclusively for the purpose of the trade or business of the company or of a connected company, or

(c) in paying off another loan where relief could have been obtained under this section for interest on that other loan if it had not been paid off (on the assumption, if the loan was free of interest, that it carried interest).

(2) Relief shall be given in respect of any payment of interest by the individual on the loan if—

(a) when the interest is paid the individual has a material interest in the company or in a connected company,

(b) during the period taken as a whole from the application of the proceeds of the loan until the interest was paid, the individual has worked for the greater part of his or her time in the actual management or conduct of the business of the company or of a connected company, and

(c) the individual shows that in the period referred to in paragraph (b) he or she has not recovered any capital from the company or from a connected company, apart from any amount taken into account under section 249 .

(3) Relief shall not be given in respect of any payment of interest by an individual on a loan applied on or after the 24th day of April, 1992, for any of the purposes specified in subsection (1) unless the loan is applied for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(4) Subsection (1) shall not apply to a loan unless it is made in connection with the application of the money and either on the occasion of its application or within what is in the circumstances a reasonable time from the application of the money, and that subsection shall not apply to a loan the proceeds of which are applied for some other purpose before being applied as described in that subsection.

(5) Interest eligible for relief under this section shall be deducted from or set off against the income of the borrower for the year of assessment in which the interest is paid and tax shall be discharged or repaid accordingly, and such interest shall not be eligible for relief under any provision of the Income Tax Acts apart from this section.

Rules relating to recovery of capital and replacement loans.

[FA74 s35(1) to (3)]

249. —(1) (a) Where, at any time after the application of the proceeds of a loan to which section 247 or 248 applies, the investing company or the individual (in this section referred to as “the borrower”) has recovered any amount of capital from the company concerned or from a connected company without using that amount in repayment of the loan, the borrower shall be treated for the purposes of this section as if the borrower had at that time repaid that amount out of the loan and so that out of the interest otherwise eligible for relief and payable for any period after that time there shall be deducted an amount equal to interest on the amount of capital so recovered.

(b) Where part only of a loan referred to in paragraph (a) fulfils the conditions in section 247 or 248 so as to afford relief for interest on that part, the deduction to be made under this subsection shall be made wholly out of interest on that part.

(2) (a) The borrower shall be treated as having recovered an amount of capital from the company or from a connected company if—

(i) the borrower receives consideration of that amount or value for the sale of any part of the ordinary share capital of the company or of a connected company or any consideration of that amount or value by means of repayment of any part of that ordinary share capital,

(ii) the company or a connected company repays that amount of a loan or advance from the borrower, or

(iii) the borrower receives consideration of that amount or value for assigning any debt due to the borrower from the company or from a connected company.

(b) In the case of a sale or assignment otherwise than by means of a bargain made at arm's length, the sale or assignment shall be deemed to be for consideration of an amount equal to the market value of what is disposed of.

(3) Sections 247 (3) and 248 (2) and subsections (1) and (2) shall apply to a loan referred to in section 247 (2)(c) or 248 (1)(c) as if such loan and any loan it replaces were one loan, and as if—

(a) references in sections 247 (3) and 248 (2) and in subsection (1) to the application of the proceeds of the loan were references to the application of the proceeds of the original loan, and

(b) any restriction under subsection (1) which applied to any loan which has been replaced applied also to the loan which replaces that loan.

Extension of relief under section 248 to certain individuals in relation to loans applied in acquiring interest in certain companies.

[FA78 s8; FA79 s9; FA96 s131(9)(a)]

250. —(1) In this section—

90 per cent subsidiary” has the meaning assigned to it by section 9 ;

full-time employee” and “full-time director”, in relation to a company, mean an employee or director, as the case may be, who is required to devote substantially the whole of his or her time to the service of the company;

holding company” has the same meaning as in section 411 ;

part-time employee” and “part-time director”, in relation to a company, mean an employee or director, as the case may be, who is not required to devote substantially the whole of his or her time to the service of the company;

private company” has the meaning assigned to it by section 33 of the Companies Act, 1963 .

(2) Notwithstanding that an individual does not satisfy one or both of the conditions set out in paragraphs (a) and (b) of section 248 (2), the individual shall be entitled to relief under section 248 for any interest paid on any loan to him or her applied for a purpose specified in section 248 (1) if—

(a) the company part of whose ordinary share capital is acquired or, as the case may be, to which the money is loaned is—

(i) both a company referred to in paragraph (a)(i) of section 248 (1) and a company in relation to which the individual was a full-time employee, part-time employee, full-time director or part-time director during the period taken as a whole from the application of the proceeds of the loan until the interest was paid, or

(ii) both a company referred to in paragraph (a)(ii) of section 248 (1) and a private company in relation to which, or in relation to any company which would be regarded as connected with it for the purposes of section 248 , the individual was during that period a full-time director or a full-time employee,

and

(b) the company or any person connected with the company has not, during the period specified in paragraph (a)(i), made any loans or advanced any money to the individual or a person connected with the individual other than a loan made or money advanced in the ordinary course of a business which included the lending of money, being business carried on by the company or, as the case may be, by the person connected with the company.

(3) In relation to any payment or payments of interest on any loan or loans applied—

(a) in acquiring any part of the ordinary share capital of a company other than a private company,

(b) in lending money to such a company, or

(c) in paying off any other loan or loans applied for a purpose specified in paragraphs (a) and (b),

no relief shall be given for any year of assessment by virtue of this section other than to a full-time employee or full-time director of the company and no such relief shall be given to such employee or director on the excess of that payment, or the aggregate amount of those payments, for that year of assessment over £2,400.

(4) Where relief is given by virtue of this section to an individual and any loan made or money advanced to the individual or to a person connected with the individual is, in accordance with paragraph (c) of subsection (5) and by virtue of subparagraph (ii), (iii), (iv) or (v) of that paragraph, subsequently regarded as not having been made or advanced in the ordinary course of a business, any relief so given, which would not have been given if, at the time the relief was given, the loan or money advanced had been so regarded, shall be withdrawn and there shall be made all such assessments or additional assessments as are necessary to give effect to this subsection.

(5) For the purposes of this section—

(a) any question whether a person is connected with another person shall be determined in accordance with section 10 (as it applies for the purposes of the Tax Acts) and paragraph (b),

(b) a person shall be connected with any other person to whom such person has, otherwise than in the ordinary course of a business carried on by such person which includes the lending of money, made any loans or advanced any money, and with any person to whom that other person has so made any loan or advanced any money and so on,

(c) a loan shall not be regarded as having been made, or money shall not be regarded as having been advanced, in the ordinary course of a business if—

(i) the loan is made or the money is advanced on terms which are not reasonably comparable with the terms which would have been applied in respect of that loan or the advance of that money on the basis that the negotiations for the loan or the advance of the money had been at arm's length,

(ii) at the time the loan was made or the money was advanced the terms were such that subparagraph (i) did not apply, those terms are subsequently altered and the terms as so altered are such that if they had applied at the time the loan was made or the money was advanced subparagraph (i) would have applied,

(iii) any interest payable on the loan or on the money advanced is waived,

(iv) any interest payable on the loan or on the money advanced is not paid within 12 months from the date on which it became payable, or

(v) the loan or the money advanced or any part of the loan or money advanced is not repaid within 12 months of the date on which it becomes repayable,

(d) the cases in which any person is to be regarded as making a loan to any other person include a case where—

(i) that other person incurs a debt to that person, or

(ii) a debt due from that other person to a third party is assigned to that person;

but subparagraph (i) shall not apply to a debt incurred for the supply by that person of goods or services in the ordinary course of that person's trade or business unless the period for which credit is given exceeds 6 months or is longer than normally given by that person,

(e) a company other than a private company shall be deemed to be a company referred to in section 248 (1)(a)(i) if it is a holding company and is resident in the State, and

(f) an individual shall be deemed to be a full-time employee or full-time director of a company referred to in paragraph (e) if the individual is a full-time employee or full-time director of any company which is a 90 per cent subsidiary of that company.

Restriction of relief to individuals on loans applied in acquiring shares in companies where a claim for “BES relief” or “film relief” is made in respect of amount subscribed for shares.

[FA90 s11; FA93 s6]

251. —Notwithstanding sections 248 and 250 , relief shall not be given under either section in respect of any payment of interest on any loan applied in acquiring shares (being shares forming part of the ordinary share capital of a company) issued—

(a) on or after the 20th day of April, 1990, if a claim for relief under Part 16 is made in respect of the amount subscribed for those shares, or

(b) on or after the 6th day of May, 1993, if a claim for relief under section 481 is made in respect of the amount subscribed for those shares.

Restriction of relief to individuals on loans applied in acquiring interest in companies which become quoted companies.

[FA92 s14(1), (2) and (3); FA97 s10]

252. —(1) In this section—

loan” means a loan applied for any of the purposes specified in the principal section;

the principal section” means section 248 as extended by section 250 ;

quoted company” means a company whose shares or any class of whose shares—

(a) are listed in the official list of the Irish Stock Exchange or any other stock exchange, or

(b) are quoted on an unlisted securities market of any stock exchange;

the specified date”, in relation to a loan, means—

(a) (i) in a case where the loan was applied on or before the 5th day of April, 1989, the 6th day of April, 1992,

(ii) in a case where the loan was applied on or after the 6th day of April, 1989, but on or before the 5th day of April, 1990, the 6th day of April, 1993, and

(iii) in a case where the loan was applied on or after the 6th day of April, 1990, the 6th day of April, 1994,

or

(b) if later, the 6th day of April in the second year of assessment next after the year of assessment in which the company, part of whose ordinary share capital was acquired or, as the case may be, to which the money was loaned, becomes a quoted company.

(2) Subject to subsection (3), if the company, part of whose ordinary share capital was acquired or, as the case may be, to which the money was loaned, is, at the specified date in relation to the loan, a quoted company, entitlement to relief under the principal section in respect of interest paid on a loan shall be determined subject to the following provisions:

(a) as respects the year of assessment commencing with the specified date, relief shall not be given in respect of the excess of the amount, or of the aggregate amount, of the interest over 70 per cent of the amount, or of the aggregate amount, of the interest in respect of which apart from this paragraph relief would otherwise have been given under the principal section;

(b) as respects the next year of assessment, relief shall not be given in respect of the excess of the amount, or of the aggregate amount, of the interest over 40 per cent of the amount, or of the aggregate amount, of the interest in respect of which apart from this paragraph relief would otherwise have been given under the principal section;

(c) as respects any subsequent year of assessment, no relief shall be given under the principal section.

(3) Notwithstanding anything in subsection (2) or the principal section, the principal section shall not apply in relation to any payment of interest on a loan applied on or after the 29th day of January, 1992, if, at the time the loan is applied, the company, part of whose ordinary share capital was or is acquired or, as the case may be, to which the money was or is loaned, is a quoted company.

Relief to individuals on loans applied in acquiring interest in partnerships.

[FA74 s36]

253. —(1) This section shall apply to a loan to an individual to defray money applied—

(a) in purchasing a share in a partnership,

(b) in contributing money to a partnership by means of capital or a premium, or in advancing money to the partnership, where the money contributed or advanced is used wholly and exclusively for the purposes of the trade or profession carried on by the partnership, or

(c) in paying off another loan where relief could have been obtained under this section for interest on that other loan if it had not been paid off (on the assumption, if the loan was free of interest, that it carried interest).

(2) Relief shall be given in respect of any payment of interest by the individual on the loan if—

(a) throughout the period from the application of the proceeds of the loan until the interest was paid the individual has personally acted in the conduct of the trade or profession carried on by the partnership as a partner therein, and

(b) the individual shows that in that period he or she has not recovered any capital from the partnership, apart from any amount taken into account under subsection (3).

(3) (a) Where at any time after the application of the proceeds of the loan the individual has recovered any amount of capital from the partnership without using that amount in repayment of the loan, the individual shall be treated for the purposes of this section as if he or she had at that time repaid that amount out of the loan, and accordingly there shall be deducted out of the interest otherwise eligible for relief and payable for any period after that time an amount equal to interest on the amount of capital so recovered.

(b) Where part only of a loan fulfils the conditions in this section so as to afford relief for interest on that part, the deduction to be made under this subsection shall be made wholly out of interest on that part.

(4) (a) The individual shall be treated as having recovered an amount of capital from the partnership if—

(i) the individual receives a consideration of that amount or value for the sale of any part of his or her interest in the partnership,

(ii) the partnership returns any amount of capital to the individual or repays any amount advanced by the individual, or

(iii) the individual receives a consideration of that amount or value for assigning any debt due to the individual from the partnership.

(b) In the case of a sale or assignment otherwise than by means of a bargain made at arm's length, the sale or assignment shall be deemed to be for consideration of an amount equal to the market value of what is disposed of.

(5) Subsections (2) to (4) shall apply to a loan referred to in subsection (1)(c) as if such loan and any loan it replaces were one loan, and as if—

(a) references in subsections (2) to (4) to the application of the proceeds of the loan were references to the application of the proceeds of the original loan, and

(b) any restriction under subsection (3) which applied to any loan which has been replaced applied also as respects the loan which replaces that loan.

(6) Subsection (1) shall not apply to a loan unless it is made in connection with the application of the money and either on the occasion of its application or within what is in the circumstances a reasonable time from the application of the money, and that subsection shall not apply to a loan the proceeds of which are applied for some other purpose before being applied as described in that subsection.

(7) Interest eligible for relief under this section shall be deducted from or set off against the income of the individual for the year of assessment in which the interest is paid and tax shall be discharged or repaid accordingly, and such interest shall not be eligible for relief under any provision of the Income Tax Acts apart from this section.

Interest on borrowings to replace capital withdrawn in certain circumstances from a business.

[FA74 s37]

254. —Where a person borrows money to replace in whole or in part capital in any form formerly employed in any trade, profession or other business carried on by the person in respect of the profits or gains of which tax is charged under Schedule D, being capital which within the 5 years preceding the date of replacement was withdrawn from such use for use otherwise than in connection with a trade, profession or other business carried on by the person, interest on such borrowed money shall not be regarded as interest wholly and exclusively laid out or expended for the purposes of a trade, profession or other business.

Arrangements for payment of interest less tax or of fixed net amount.

[FA74 s39]

255. —(1) Any agreement made, whether orally or in writing, for the payment of interest “less tax”, or using words to that effect, shall be construed, in relation to interest payable without deduction of tax, as if the words “less tax” or the equivalent words were not included.

(2) In relation to interest on which the recipient is chargeable to tax under Schedule D and which is payable without deduction of tax, any agreement, whether orally or in writing and however worded, for the payment of interest at such a rate (in this subsection referred to as “the gross rate”) as shall, after deduction of tax at the standard rate of tax for the time being in force, be equal to a stated rate, shall be construed as if it were an agreement requiring the payment of interest at the gross rate.