Finance Act 2008

Restrictions on relief for interest payments

21 (1) Section 384 of ITA 2007 (general restrictions on relief for interest payments) is amended as follows.

(2) In subsection (2), for “interest is paid at a rate in excess of a reasonable commercial rate” substitute “the interest paid on a loan in a tax year exceeds a reasonable commercial amount of interest on the loan for the relevant period”.

(3) After subsection (2) insert—

“(3) The relevant period is the tax year or, if the loan exists for part only of the tax year, the part of the tax year for which the loan exists.

(4) A reasonable commercial amount of interest on the loan for the relevant period is an amount which, together with any interest paid before that period (other than unrelieved interest), represents a reasonable commercial rate of interest on the loan from the date it was made to the end of that period.

(5) “Unrelieved interest” means interest which because of subsection (2) is not eligible for relief under this Chapter.”

(4) The amendments made by this paragraph have effect in relation to interest paid on or after 9 October 2007; but in relation to interest paid in the period beginning with that date and ending with 5 April 2008, they have effect as if the references in section 384(2) and (3) to a tax year were to that period.