Income Tax Act 2007 section 362

Repayment of loan capital during 5 year period

Section 362 sets out the rules for withdrawing Community Investment Tax Relief (CITR) when a loan investment is repaid too quickly during the five-year qualifying period, unless the shortfall is insignificant or arises from a non-standard repayment.

• If a CITR investment takes the form of a loan and its average capital balance falls below specified permitted levels in the third, fourth or fifth year of the five-year period by more than an insignificant amount, all CITR attributable to the investment must be withdrawn.
• The permitted balance decreases over time: 75% of a benchmark balance in the third year, 50% in the fourth year, and 25% in the final year, where the benchmark is the average capital balance during the six months starting 18 months after the investment date.
• Non-standard repayments — those made at the CDFI's discretion outside of loan obligations, or resulting from breaches of obligations that merely reflect normal commercial lending risk — are ignored when calculating the average capital balance.
• A shortfall is treated as insignificant if it is no more than £1,000, or, where it exceeds £1,000, it is insignificant relative to the average capital balance for the year in question.