Income Tax Act 2007 section 405

Carry back and forward of relief for interest on loans within section 403

Section 405 allows relief for interest on loans taken out to pay inheritance tax to be carried back to earlier tax years, or forward to later tax years, where the taxpayer's income in the year of payment is insufficient to absorb the relief.

• This relief applies only to interest on loans taken out to pay inheritance tax under section 403 — it is the only type of interest relief that can be used against income of a different tax year from the one in which the interest was paid.
• If the taxpayer's income in the year the interest is paid is too low to use the relief, it can be carried back to the preceding tax year, then the year before that, and so on until it is fully absorbed.
• If carry-back does not fully absorb the relief (because income in earlier years is also insufficient), the unused amount can instead be carried forward to the tax year following the year of payment, then the next year, and so on.
• The carry-back route is tried first; carry-forward is only available if carry-back cannot provide full relief.