Part 4Real Estate Investment Trusts

Assets etc

115Profit: financing-cost ratio

1

The Treasury may make regulations that apply to a company to which this Part applies where the result of the sum specified in subsection (2) is less than 1.25 in respect of an accounting period.

2

That sum is—

Profits+FinancingCostsFinancingCostsmath

where—

  1. a

    Profits means the amount of the profits of C (tax-exempt) arising in the accounting period (before the offset of capital allowances), and

  2. b

    Financing Costs means the amount of the financing costs incurred in that period in respect of the business of C (tax-exempt).

3

The regulations may cause a sum to be charged to tax, in accordance with the regulations, by reference to that part of the financing costs as a result of which the result of the sum specified in subsection (2) is less than 1.25.

4

In subsections (2)(b) and (3) “financing costs” means the cost of debt finance; and in calculating the costs of debt finance in respect of an accounting period the matters to be taken into account include—

a

costs giving rise to debits in respect of debtor relationships of the company under Chapter 2 of Part 4 of FA 1996 (loan relationships), other than debits in respect of exchange losses from such relationships (within the meaning of section 103(1A) and (1B) of that Act),

b

any exchange gain or loss from a debtor relationship within the meaning of that Chapter in relation to debt finance,

c

any credit or debit falling to be brought into account under Schedule 26 to FA 2002 (derivative contracts) in relation to debt finance,

d

the financing cost implicit in a payment under a finance lease, and

e

any other costs arising from what would be considered, in accordance with generally accepted accounting practice, to be a financing transaction.