Income Tax Act 2007 section 809CZB

Certain payments treated as yearly interest

Section 809CZB requires certain annual payments made under loan or credit transactions to be treated as yearly interest for income tax purposes.

• Where a loan or credit transaction provides for a payment that is not interest but takes the form of an annuity or other annual payment, this section applies to re-characterise that payment.
• The annual payment must be one that is chargeable to income tax (but not as relevant foreign income) or chargeable to corporation tax as an annual payment from a UK source.
• Any such payment must be treated as if it were a payment of yearly interest for all purposes of the Income Tax Acts, which triggers the obligation to deduct income tax at source under section 874.
• The effect is to prevent loan or credit arrangements from using annual payments instead of interest to avoid the withholding tax rules that apply to yearly interest.