Income Tax Act 2007 section 386

Loans partly meeting requirements

Section 386 deals with how interest relief is apportioned when a loan is only partly used for a qualifying purpose — a so-called "mixed loan".

• Where only part of a loan is used for a qualifying purpose, that part is treated as a separate qualifying loan in its own right.
• Only the proportion of interest that corresponds to the qualifying part of the loan is eligible for tax relief.
• If part of a mixed loan is repaid, the repayment is split between the qualifying and non-qualifying parts in the same ratio as when the loan was originally used.
• A stricter rule may override the normal repayment apportionment where there has been a recovery of capital relating to a qualifying investment.