Income Tax (Trading and Other Income) Act 2005 section 154A

Certain non-UK residents with interest on 3½% War Loan 1952 Or After

Section 154A restricts the amount of borrowing costs that non-UK resident traders in banking, insurance or securities dealing can deduct against their UK trading profits, where those traders hold tax-exempt 3½% War Loan 1952 Or After.

• Non-UK residents trading in banking, insurance or securities dealing in the UK who hold exempt 3½% War Loan must restrict their deduction for interest on trade borrowings
• Interest on trade borrowings is only deductible to the extent it exceeds an "ineligible amount" calculated using a five-step process based on total borrowings, the cost of the War Loan held, and the average borrowing rate
• Where the trader's War Loan holding has fluctuated during the basis period, the total cost used in the calculation is adjusted by a formula that takes account of the average holding relative to total acquisitions
• The restriction prevents traders from obtaining a tax deduction for borrowing costs that effectively finance the holding of tax-exempt War Loan securities