Taxation (International and Other Provisions) Act 2010 Schedule 7 Part 7

Relocation of section 475 of ICTA (paragraphs 40–43)

Section 154A of ITTOIA 2005, as inserted by Schedule 7 Part 7, restricts the tax deduction for borrowing costs where a non-UK resident holds 3½% War Loan in connection with a trade of banking, insurance or dealing in securities.

• Non-UK residents carrying on banking, insurance or securities dealing in the UK who hold 3½% War Loan 1952 Or After are affected by a restriction on deductible borrowing interest.
• Because interest on 3½% War Loan is exempt from tax for non-UK residents, a corresponding portion of the borrowing costs used to fund those holdings is disallowed as a trade deduction.
• The disallowed amount (the "ineligible amount") is calculated using a five-step formula that compares total trade borrowings with the cost of War Loan holdings and applies the average borrowing interest rate for the period.
• Where the holding of War Loan has fluctuated during the basis period, a weighted average cost formula is used to determine the total cost for the purposes of the calculation.

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