Income Tax Act 2007 section 809BZI

Deemed interest

Section 809BZI allows a transferor in a type 2 finance arrangement to treat a finance charge recorded in the accounts as interest payable on a loan for income tax purposes, and sets out the rules for determining when that deemed interest is treated as paid.

• Where a type 2 finance arrangement exists and the transferor is within the charge to income tax, any finance charge recorded under GAAP in the partnership's (or transferor's) accounts may be treated as loan interest for tax purposes.
• This treatment is elective — the transferor may choose to treat the finance charge as interest payable on a loan, potentially qualifying for income tax relief on that interest.
• The reference to the partnership's accounts is extended to include the transferor's own accounts, so relief is available even if only the transferor's accounts record the finance charge.
• Where deemed interest arises, the periodic payments under the arrangement are split into capital repayment and interest elements, and the deemed interest is treated as paid at the times those interest elements are actually paid.