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HMRC internal manual

Savings and Investment Manual

Relief for interest paid: introduction

Relief for interest payments

Chapter 1 of Part 8 of the Income Tax Act 2007 provides for relief to be given to a person who pays interest on certain loans.

Relief is given as a deduction in computing net income of the tax year in which the interest payment is made. So if the interest exceeds the income from which it can be deducted, relief for the excess is generally lost. The exception from this rule is ITA07/S405 (carry back and forward of relief for interest on loans to pay inheritance tax). SAIM10350 

Under ITA07/S383 relief is given for interest payments made on loans taken out for one of a number of specified purposes (see table below), where the interest is eligible for relief and where the person makes a claim. These purposes do not include the generality of purposes for which loans are taken out in the course of a trade or property business, as interest will normally be an allowable deduction in computing the income from that source.

SAIM10020 to SAIM 10090 General conditions applicable to all such loans.
SAIM10200 Loans to buy plant or machinery for partnerships or employment use.
SAIM10210 to SAIM10260 Loans to acquire an interest in a close company.
SAIM10270 Loans to acquire an interest in an employee controlled company.
SAIM10280 to SAIM10320 Loans to invest in a partnership.
SAIM10330 Loans to invest in a co-operative.
SAIM10340 Relief on business successions or reorganisations.
SAIM10350 Loans to pay inheritance tax.