739LA Profit: financing cost ratio

Summary

This section provides a restriction on the interest deductions taken by IREFs. This section applies to accounting periods commencing on or after 9 October 2019 and where an accounting period commences before that date and ends after that date then it shall be divided into two parts one beginning on the date on which the accounting period begins and ending on 8 October 2019 and the other beginning on 9 October 2019 and ending on the date in which the accounting period ends.

Details

(1) Main definitions

“adjusted property financing costs” means the property financing costs less any amount of income referred to in subsection (2)(b);

“property financing costs” means costs of debt finance or finance leases which are taken into account in arriving at the profits of an IREF including interest, discounts, premiums or swap/hedging costs and fees or other expenses associated with raising debt finance or finance leases;

“property financing costs ratio” means the ratio of the sum of profits of an IREF plus the adjusted property financing costs of an IREF to the adjusted property financing costs of the IREF;

“relevant cost” means an amount which would be the allowable deduction for the purposes of CGT under section 552(1);

“specified debt” means any debt incurred by an IREF in respect of amounts borrowed or advanced to an IREF.

(2) Where the total specified debt of an IREF exceeds 50% of the relevant cost of the IREF assets then the IREF shall be treated as receiving an amount of income equal to –

A is the property financing costs

B is the excess specified debt

C is the total specified debt

(3) Where for an accounting period the property financing costs ratio of an IREF is less than 1.25:1 then the IREF will be treated as receiving an amount of income equal to the amount by which the adjusted property financing costs would have to be reduced for the ratio to equal 1.25:1.

(4) The amounts of income referred to in subsection (2) and (3) are charged to income tax under Case IV Schedule D and are treated as income arising in the year of assessment in which the accounting period which the amount was taken into account ends and no loss, deficit, expense or allowance can be off set against the amount.

Relevant Date: Finance Act 2021