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HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
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Relief for interest paid: arrangements minimising risk to borrower: definitions


Post-tax advantage

Arrangements will ‘appear very likely to produce a post tax advantage’ if one might reasonably assume (ignoring insignificant risk) that the arrangements will, after making the ‘appropriate tax adjustments’, allow the borrower (or a person connected with the borrower) to exit the arrangement with more money than was originally invested by virtue of the interest being eligible for relief.

Appropriate tax adjustments

‘Appropriate tax adjustments’ are defined in sub-sections (8) and (9) and ensure that the value of the tax relief that would be due (apart from S384A) is taken into account in determining the return to the borrower. Conversely any additional tax due as a result of the arrangements is also taken into account.

The adjustments are made by comparing “A” and “B”. If “A” exceeds “B” the excess is to be deducted from the amount produced and if “B” exceeds “A” the excess is added to that amount. For this purpose A and B are to be computed independently of the other and it is assumed that the relief for interest is not blocked by S384A(1).

“A” is the amount of any income tax, capital gains tax or tax under the law of a territory outside the UK to which the borrower becomes liable as a result of the arrangements.

“B” is the aggregate amount by which the borrower’s liability to income tax and capital gains tax would be reduced in consequence of the arrangements. This includes, but is not limited to a reduction in tax resulting from a claim under the interest relief provisions.

Arrangements designed to reduce tax

Arrangements will seem to have been designed to reduce any tax liability that would have arisen independently of the arrangements if, and only if, it would be reasonable to assume from all or any relevant circumstances that the arrangements or any part of them were so designed. This would, for example, apply if the scheme is a marketed one and the marketing literature indicates that the arrangements are intended to reduce a tax liability that would arise independently of the scheme.


‘Arrangements’ has a wide meaning in this section including ‘any number of agreements, understandings, schemes, transactions or other arrangements (whether or not legally enforceable) and related transactions. These are defined as any transactions (which need not be between the same parties as the arrangements) that it is reasonable to assume would not have been entered into independently of the arrangements.