Income Tax Act 2007 section 879

Deduction from certain payments of yearly interest: interest paid on advances from banks

Section 879, as modified by Schedule 2 paragraph 164, provides transitional rules for the exemption from the duty to deduct income tax at source on interest paid on advances from banks, particularly in relation to changes that took effect on 29 April 1996.

• Payments of interest on advances from a bank carrying on a genuine banking business in the UK are generally exempt from the duty to deduct income tax at source under section 874.
• The transitional rule applies broadly to all interest payable before 29 April 1996.
• For institutions that were newly classified as banks on 29 April 1996 (not previously treated as genuine UK banks but falling within the new statutory definition on that date), the exemption applies to interest on advances made before that date.
• For institutions that lost their bank status on 29 April 1996 (previously treated as genuine UK banks but no longer meeting the new statutory definition), the exemption applies to interest on pre-29 April 1996 advances only where the person beneficially entitled to the interest is within the charge to corporation tax on that interest at the time of payment.

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