Finance Act 1993

56 Interest relief: substitution of security.U.K.

The following sections shall be inserted after section 357 of the Taxes Act 1988—

“357A Substitution of security.

(1)Subject to subsection (9) below, this section applies where—

(a)on or after 16th March 1993 a person purchases an estate or interest in land or the property in a caravan or house-boat (the new estate, interest or property), and

(b)a security substitution arrangement takes effect on or after that date in connection with the purchase.

(2)Subsection (3) below applies where—

(a)the arrangement mentioned in subsection (1) above relates to one existing loan only, and

(b)no other security substitution arrangement takes effect at the same time in connection with the purchase of the new estate, interest or property.

(3)As regards interest paid on the loan after the time the new estate, interest or property became security for the loan, the loan shall be treated for the purposes of sections 353 to 379 (other than this section and sections 357B and 357C) as if—

(a)it had been made at that time, and

(b)so much of it as was then outstanding and did not exceed the relevant amount had been used at that time to defray money applied in purchasing the new estate, interest or property.

(4)Subsection (5) below applies where either—

(a)the arrangement mentioned in subsection (1) above relates to two or more existing loans, or

(b)two or more security substitution arrangements take effect at the same time in connection with the purchase of the new estate, interest or property.

(5)As regards interest paid on the loans after the time the new estate, interest or property became security for the loans, the loans shall be treated for the purposes of sections 353 to 379 (other than this section and sections 357B and 357C) as if—

(a)they had been made at that time, and

(b)they had been used at that time to defray money applied in purchasing the new estate, interest or property;

but in any case where at that time the aggregate of the amounts of the loans outstanding exceeded the relevant amount, the loans shall be treated as mentioned in paragraph (b) above only to the extent that the aggregate did not exceed the relevant amount.

(6)For the purposes of this section the relevant amount is—

(a)where there is no loan falling within subsection (7) below, an amount equal to the purchase price of the new estate, interest or property;

(b)where there is one loan falling within that subsection, an amount equal to the difference between the purchase price of the new estate, interest or property and the amount of that loan;

(c)where there are two or more loans falling within that subsection, an amount equal to the difference between the purchase price of the new estate, interest or property and the total of the amounts of those loans.

(7)A loan falls within this subsection if—

(a)it is at the relevant time, or was before the relevant time, actually used to any extent to defray money applied in purchasing the new estate, interest or property, or

(b)by virtue of an earlier security substitution arrangement, it is treated to any extent as if before the relevant time it had been used to defray money so applied;

but a loan does not fall within this subsection unless interest on the loan is eligible for relief under section 353 by virtue of section 355(1)(a) or 356(1).

(8)For the purposes of subsection (7) above the relevant time is the time when under the arrangement mentioned in subsection (1) above the new estate, interest or property becomes security for the existing loan or loans.

(9)This section does not apply in relation to a security substitution arrangement if, as regards the new estate, interest or property—

(a)there is at least one loan falling within subsection (7) above, and

(b)the amount of that loan or (if there is more than one) the total of the amounts of those loans is the same as the purchase price of the new estate, interest or property.

(10)For the purposes of subsections (6) and (9) above the amount of a loan is its amount when made, except that where—

(a)a loan falls within subsection (7) above by virtue of the fact that it is or was partly used to defray money applied in purchasing the new estate, interest or property, or

(b)a loan falls within that subsection by virtue of the fact that it is treated as if it had been partly so used,

the amount of the loan shall be taken for the purposes of subsections (6) and (9) above to be the amount of the part so used or (as the case may be) treated as so used.

357B Treatment of loans following security substitution.

(1)This section applies where—

(a)by virtue of section 357A a loan is treated to any extent as having been used at a particular time to defray money applied in purchasing the new estate, interest or property,

(b)after that time a loan (a new loan) is actually used to any extent to defray money applied in purchasing the new estate, interest or property, and

(c)interest on the new loan is (or would be apart from this section) eligible for relief under section 353 by virtue of section 355(1)(a) or 356(1).

(2)Subject to subsection (4) below, as regards interest paid on the new loan after the time it is used as mentioned in subsection (1)(b) above (the material time), such part of the loan as was actually used to defray money applied in purchasing the new estate, interest or property shall be treated for the purposes of sections 353 to 379 as having been so used only to the extent that the amount of that part does not exceed the applicable amount.

(3)Subsection (4) below applies in a case where—

(a)two or more new loans are simultaneously used to any extent as mentioned in subsection (1)(b) above, and

(b)interest on each of them is or would be eligible for relief as mentioned in subsection (1)(c) above.

(4)As regards interest paid on the new loans after the material time, such parts of the loans as were actually used to defray money applied in purchasing the new estate, interest or property shall be treated for the purposes of sections 353 to 379 as having been so used only to the extent that the aggregate of the amounts of those parts does not exceed the applicable amount.

(5)For the purposes of this section the applicable amount is the difference between—

(a)the purchase price of the new estate, interest or property, and

(b)the amount of any relevant loan or, if there is more than one, the total amounts of the relevant loans.

(6)For the purposes of subsection (5) above a relevant loan is a loan which—

(a)before the material time was actually used to any extent to defray money applied in purchasing the new estate, interest or property, or

(b)by virtue of section 357A, is treated to any extent as if before the material time it had been used to defray money so applied;

but a loan is not a relevant loan unless interest on it is eligible for relief under section 353 by virtue of section 355(1)(a) or 356(1).

(7)For the purposes of subsection (5) above the amount of a relevant loan is its amount when made, except that where—

(a)a loan is a relevant loan by virtue of the fact that it was partly used to defray money applied in purchasing the new estate, interest or property, or

(b)a loan is a relevant loan by virtue of the fact that it is treated as if it had been partly so used,

the amount of the loan shall be taken for the purposes of that subsection to be the amount of the part so used or (as the case may be) treated as so used.

357C Substitution of security: supplemental.

(1)An arrangement is a security substitution arrangement for the purposes of section 357A if—

(a)under the arrangement the new estate, interest or property becomes security for an existing loan or existing loans,

(b)under the arrangement an estate or interest in land, or the property in a caravan or house-boat, ceases to be security for the loan or loans,

(c)the estate, interest or property mentioned in paragraph (b) above was not absorbed into, or given up to obtain, the new estate, interest or property,

(d)the loan or (as the case may be) at least one of the loans is a qualifying loan, and

(e)the circumstances are such that, had the loan or loans been used to defray money applied in purchasing the new estate, interest or property, interest on the loan or (as the case may be) on each of the loans would have been eligible for relief under section 353 by virtue of section 355(1)(a) or 356(1).

(2)For the purposes of subsection (1) above a loan is a qualifying loan if, immediately before the arrangement took effect, interest on the loan was eligible for relief under section 353 by virtue of section 355(1)(a) or section 356(1).

(3)In a case where—

(a)paragraphs (a) to (d) of subsection (1) above apply in relation to an arrangement,

(b)the arrangement relates to two or more loans, and

(c)one or more of the loans is not a qualifying loan for the purposes of subsection (1) above,

any loan which is not a qualifying loan shall be ignored in applying subsection (1)(e) above.

(4)Where a security substitution arrangement relates to two or more loans and one or more of them is not a qualifying loan for the purposes of subsection (1) above, any loan which is not a qualifying loan—

(a)shall be left out of account in determining for the purposes of section 357A the number of existing loans to which the arrangement relates;

(b)shall not be treated as mentioned in section 357A(3) or (5);

(c)shall be left out of account in calculating for the purposes of section 357A(5) the aggregate of the amounts of the loans outstanding at the time the new estate, interest or property became security for them.

(5)Subsection (6) below applies where—

(a)the purchase mentioned in subsection (1) of section 357A is made jointly by the person mentioned in that subsection (the relevant person) and another person or other persons, and

(b)any of the money applied in the purchase is attributable to the relevant person and not to the other person or, as the case may be, attributable to the relevant person and not to all the other persons.

(6)In relation to the relevant person—

(a)the references in sections 357A and 357B to the new estate, interest or property shall be treated as references to his share of the new estate, interest or property, and

(b)the references in sections 357A and 357B to the purchase price of the new estate, interest or property shall be treated as references to so much of the money applied in purchasing the estate, interest or property as is attributable to him.

(7)In determining for the purposes of this section and sections 357A and 357B whether interest is, was or would have been eligible for relief under section 353, section 353(2) shall be disregarded.”