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HMRC internal manual

Savings and Investment Manual

Relief for interest paid: general conditions

General conditions

Overdrawn accounts, credit cards and reasonable commercial rate of interest

Relief is not given for interest paid on an overdrawn account or on a credit card or similar arrangement, nor is relief given for more than a ‘reasonable commercial rate’ of interest (ITA07/S384).

S384 was amended for interest paid on or after 9 October 2007. For interest paid on or after this date see SAIM10060+

Timing and use of the loan

Relief is due where the loan is ‘used’ for the specified purpose. This means that it must be applied for that purpose or used to meet expenditure that has already been incurred for that purpose.

Relief applies only to loans of money used within a reasonable time, and not previously applied for another purpose (ITA07/S385).

Mixed loan

If a ‘mixed loan’ is taken out, only the ‘qualifying part’ of the loan qualifies for relief (ITA07/S386). Any repayments of a mixed loan are apportioned between the qualifying and non-qualifying parts. But note that a different rule applies where capital has been recovered from an investment funded from the qualifying part of the loan. In that case the qualifying part is treated as repaid to the extent of the recovery (SAIM10250 and SAIM10310).

Exclusion of double relief

ITA07/S387 prevents relief being given twice - both under the rules in Chapter 1 Part 8 ITA07 and under other tax rules, for example, as a deduction in computing profits.

Ineligibility of interest where business is occupation of commercial woodlands

Relief is not due on loans taken out to invest in a close company, employee controlled company or partnership, where the business is the occupation of commercial woodlands (ITA07/S411).

Alternative finance

Relief extends to interest-like payments made under alternative finance arrangements (see CFM44000+).

Relief cap

From 2013-14 there is a limit on the amount of income tax relief that an individual may claim for deduction from their total income in a tax year. The limit in each tax year is the greater of £50,000 or 25 per cent of the individual’s adjusted total income.