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HMRC internal manual

Savings and Investment Manual

Disguised interest: double taxation

Where a disguised interest return is taxable under other income tax provisions, those other provisions take priority over the disguised interest rules in ITTOIA05/PT4/CH2A (SAIM2710). Where the return is not taxable under other income tax rules, the return may be taxable both as disguised interest and under other tax rules, such as the rules on chargeable gains. ITTOIA05/S381D ensures that in such a case there is no double taxation.

The taxpayer may make a claim for relief from the other tax and HMRC must give effect to the claim by making any necessary adjustments on a just and reasonable basis. These adjustments may be made by making or amending an assessment, or amending a claim, or by any other means by which a person’s tax liability can be amended. Where the other tax is charged for a different tax year to the one for which the disguised interest rule applies, the adjustments can be for that other period.

ITTOIA05/S381D will commonly apply where arrangements giving rise to disguised interest returns involve the disposal of chargeable assets for capital gains tax purposes. TCGA92/S37(2A) and TCGA92/S39(3A) make it clear that amounts taken into account in arriving at disguised interest returns are not excluded from the computation of chargeable gains on the disposal of such assets.