Income Tax (Trading and Other Income) Act 2005 section 307C

Cash basis: deduction for costs of loans

Section 307C restricts the tax deduction available for loan costs in a property business using the cash basis, where the total outstanding loan balance exceeds the value of the properties used in the business.

• Where a property business uses the cash basis and has loans with deductible costs, a restriction applies if the total outstanding loan amounts exceed the combined value of all relevant properties at the end of the tax year.
• The outstanding business amount of each loan is calculated by taking the outstanding principal and multiplying it by the proportion of the loan costs that are wholly and exclusively for business purposes.
• The value of each relevant property is its market value when first brought into the business, plus any capital expenditure on the property not already deducted in current or earlier years.
• Loan costs include interest, amounts economically equivalent to interest, and incidental costs of obtaining the finance.