What does section 399B of the Income Tax Act 2007 do?

Section 399B provides a basic rate tax reduction for individuals in property partnerships whose loan interest deduction has been restricted under section 399A. Instead of losing relief entirely, the disallowed loan interest becomes a 'relievable amount' and the individual receives a tax reduction calculated at the basic rate of income tax, currently 20%.

What is the 'relievable amount' under section 399B?

The relievable amount is the portion of loan interest that would have qualified for relief under section 383(1) but has been disallowed by section 399A. This amount forms the basis for calculating the basic rate tax reduction, ensuring the individual still receives some relief for the restricted interest on their property partnership investment.

How is the tax reduction under section 399B calculated?

The tax reduction is calculated by multiplying the basic rate of income tax for the relevant year by the relievable amount. For example, if the basic rate is 20% and the disallowed interest is £10,000, the tax reduction is £2,000. This applies regardless of whether the individual pays tax at the higher or additional rate.

Why does section 399B limit relief to the basic rate for higher rate taxpayers?

Section 399B mirrors the wider United Kingdom restriction on finance costs for residential landlords. By giving relief as a tax reduction at the basic rate rather than a full income deduction, it ensures higher and additional rate taxpayers receive relief only at 20%, aligning property partnership loan interest treatment with the broader residential property finance cost rules.

Income Tax Act 2007 section 399B

Property partnerships: tax reduction for non-deductible loan interest

Section 399B provides a basic rate tax reduction for individuals in property partnerships whose loan interest relief has been restricted under section 399A.

Where loan interest on a property partnership investment cannot be deducted from income because of section 399A restrictions, the disallowed amount becomes the "relievable amount"
The individual is entitled to a tax reduction (rather than a full deduction) in respect of that relievable amount
The tax reduction is calculated as the basic rate of income tax multiplied by the relievable amount
This means relief is effectively given at the basic rate (currently 20%) regardless of the individual's marginal tax rate

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