First Previous (Chapter II Taxation of Farming Profits, Provisions in Respect of Certain Farm Losses and Restriction of Personal Allowances) Next (Chapter IV Anti-avoidance)

27 1974

FINANCE ACT, 1974

Chapter III

Restriction of Relief in Respect of Interest

Restriction on repayment of tax on interest in certain cases.

29. —The following section is hereby substituted for section 496 of the Income Tax Act, 1967

“496.—(1) Subject to the provisions of this section—

(a) where interest payable in the State on an advance from a bank carrying on a bona fide banking business in the State is paid to the bank without deduction of tax out of profits or gains brought into charge to tax, the person by whom the interest is paid shall be entitled, on proof of the facts, to repayment of tax on the amount of the interest,

(b) a like repayment shall on the like proof be made in the case of interest payable in the State on an advance from a person who in the opinion of the Revenue Commissioners is bona fide carrying on business as a member of a stock exchange in the State or from any person who in the opinion of the said Commissioners is bona fide carrying on the business of a discount house in the State,

(c) a like repayment shall on the like proof be made in the case of yearly interest (including interest to which section 30 (1) or 50 (2) of the Finance Act, 1974 applies) charged with tax under Schedule D.

(2) In relation to any interest paid in respect of any period beginning on or after the 10th day of January, 1974, notwithstanding the provisions of subsection (1), no repayment of tax shall be made under this section—

(a) for the year of assessment 1973-74, on the excess of the interest over £500, or

(b) for the year of assessment 1974-75, or for any subsequent year of assessment, on the excess of the interest over £2,000:

Provided that paragraph (a) shall not apply to interest wholly and exclusively laid out or expended for the purposes of a trade or profession, or other business whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D.

(3) Where, in relation to interest paid in respect of any period beginning on or after the 10th day of January, 1974, relief is claimed by a person by virtue of more than one of the following provisions, that is to say, subsection (2), section 76 (1) (c) or paragraph 1 (2) of Part III of Schedule 6, relief shall not be given to such person in respect of the part (if any) of the aggregate amount of interest paid by him that exceeds the appropriate amount specified in subsection (2).

(4) The provisions of subsection (2) shall not apply to interest on money borrowed to pay death duties.

(5) No repayment of tax shall be made under this section unless the Revenue Commissioners are satisfied that the relevant interest has been or will be brought into account in the statement delivered or to be delivered for the purposes of tax by the person making the advance on which the interest was paid.”.

Provision in relation to tax deducted from certain payments of interest made before passing of this Act.

30. —(1) This section applies to payments of interest (other than interest on a loan secured by an instalment promissory note of the kind referred to in section 50 (2) or interest to which section 31 (2) applies) in respect of any period beginning on or after the 10th day of January, 1974, made before the passing of this Act from which tax was deducted under section 433 or 434 of the Income Tax Act, 1967 .

(2) Payments of interest to which this section applies shall be deemed to be payments not made out of profits or gains brought into charge, whether or not they are such payments, and subsections (2) to (5) of section 434 of the Income Tax Act, 1967 , shall apply to the said payments as they apply to payments specified in subsection (1) of that section.

Interest payments by companies and to non-residents.

31. —(1) In this section “company” means any body corporate.

(2) Where any yearly interest charged with tax under Schedule D is paid—

(a) by a company otherwise than when paid in a fiduciary or representative capacity to a person whose usual place of abode is in the State, or

(b) by any person to another person whose usual place of abode is outside the State,

in respect of any period beginning on or after the 10th day of January, 1974, the person by or through whom the payment is made shall, on making the payment, deduct out of it a sum representing the amount of the tax thereon at the standard rate in force at the time of the payment and subsections (2) to (5) of section 434 of the Income Tax Act, 1967 , shall apply to such payments as they apply to payments specified in subsection (1) of that section.

(3) Subject, as respects paragraph (a), to section 50 (4), subsection (2) shall not apply to—

(a) interest on a loan secured by an instalment promissory note of the kind referred to in section 50 (2), or

(b) interest paid in the State on an advance from a bank carrying on a bona fide banking business in the State, or

(c) interest paid by such a bank in the ordinary course of such business, or

(d) interest paid by a company which has been authorised by the Revenue Commissioners to pay interest without deduction of income tax, or

(e) interest on any securities in respect of which the Minister for Finance has given a direction under section 466 of the Income Tax Act, 1967 , or

(f) interest paid without deduction of tax by virtue of section 221 of the Income Tax Act, 1967 .

Relief on certain bridging loans.

32. —(1) Where a person—

(a) disposes of his only or main residence and acquires another residence for use as his only or main residence,

(b) obtains a loan the proceeds of which are used to defray, in whole or in part, the cost of the acquisition or the disposal or both, and

(c) pays interest on the loan (and on any subsequent loan the proceeds of which are used to repay, in whole or in part, the first-mentioned loan or any such subsequent loan or to pay interest on any such loan) in respect of the period of twelve months from the date of the making of the first-mentioned loan, he shall be entitled, on proof of the facts, to repayment of tax under section 496 of the Income Tax Act, 1967 , as amended by section 29, on the amount of that interest as if no other interest had been paid by him in respect of the aforementioned period of twelve months.

(2) Subsection (1) shall not apply to a loan the proceeds of which are applied for some other purpose before being applied for the purpose specified in that subsection.

Relief to companies on loans applied in acquiring interest in other companies.

33. —(1) (a) In this section and sections 34 and 35—

ordinary share capital” has the meaning assigned to it by section 323 of the Income Tax Act, 1967 ;

control” has the meaning assigned to it by section 16 of the Finance (Miscellaneous Provisions) Act, 1968 ;

material interest”, in relation to a company, means the beneficial ownership of, or the ability to control, directly or through the medium of a connected company or connected companies or by any other indirect means, more than 5 per cent, of the ordinary share capital of the company.

(b) For the purposes of this section and sections 34 and 35 a company shall be regarded as connected with another company if it would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 , and if it is such a company as is referred to in subsection (2) (a).

(2) This section applies to a loan to a company (referred to subsequently in this section and in section 35 (1) as the investing company) to defray money applied—

(a) in acquiring any part of the ordinary share capital of—

(i) a company which exists wholly or mainly for the purpose of carrying on a trade or trades or a company whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D, or

(ii) a company whose business consists wholly or mainly of the holding of stocks, shares or securities of such a company as is referred to in subparagraph (i), or

(b) in lending to such a company as is referred to in paragraph (a) money which is used wholly and exclusively for the purposes of the trade or business of the company or of a connected company, or

(c) in paying off another loan where relief could have been obtained under this section for interest on that other loan if it had not been paid off (on the assumption, if the loan was free of interest, that it carried interest).

(3) Relief shall be given in respect of any payment of the interest by the investing company on the loan—

(a) if when the interest is paid the investing company has a material interest in the company or in a connected company, and

(b) if, during the period taken as a whole from the application of the proceeds of the loan until the interest was paid, at least one director of the investing company was also a director of the company or of a connected company, and

(c) if the investing company shows that in the period aforesaid it has not recovered any capital from the company or from a connected company apart from any amount taken into account under section 35.

Relief to individuals on loans applied in acquiring interest in companies.

34. —(1) This section applies to a loan to an individual to defray money applied—

(a) in acquiring any part of the ordinary share capital of—

(i) a company which exists wholly or mainly for the purpose of carrying on a trade or trades or a company whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D, or

(ii) a company whose business consists wholly or mainly of the holding of stocks, shares or securities of such a company as is referred to in subparagraph (i), or

(b) in lending to such a company as is referred to in paragraph (a) money which is used wholly and exclusively for the purpose of the trade or business of the company or of a connected company, or

(c) in paying off another loan where relief could have been obtained under this section for interest on that other loan if it had not been paid off (on the assumption, if the loan was free of interest, that it carried interest).

(2) Relief shall be given in respect of any payment of the interest by the individual on the loan—

(a) if when the interest is paid he has a material interest in the company or in a connected company,

(b) if, during the period taken as a whole from the application of the proceeds of the loan until the interest was paid, he has worked for the greater part of his time in the actual management or conduct of the business of the company or of a connected company, and

(c) if he shows that in the period aforesaid he has not recovered any capital from the company or from a connected company, apart from any amount taken into account under section 35.

Rules relating to recovery of capital.

35. —(1) If at any time after the application of the proceeds of a loan to which section 33 or 34 applies the investing company or the individual (referred to subsequently in this section as the borrower) has recovered any amount of capital from the company concerned or from a connected company without using that amount in repayment of the loan, the borrower shall be treated for the purposes of this section as if he had at that time repaid that amount out of the loan, and so that out of the interest otherwise eligible for relief and payable for any period after that time there shall be deducted an amount equal to interest on the amount of capital so recovered. If part only of such a loan fulfils the conditions in section 33 or 34 so as to afford relief for interest on that part, the deduction to be made under this subsection shall be made wholly out of interest on that part.

(2) The borrower shall be treated as having recovered an amount of capital from the company or from a connected company if—

(a) the borrower receives consideration of that amount or value for the sale of any part of the ordinary share capital of the company or of a connected company or any consideration of that amount or value by way of repayment of any part of that ordinary share capital, or

(b) the company or a connected company repays that amount of a loan or advance from him, or

(c) the borrower receives consideration of that amount or value for assigning any debt due to him from the company or from a connected company.

In the case of a sale or assignment otherwise than by way of a bargain made at arm's length, the sale or assignment shall be deemed to be for consideration of an amount equal to the market value of what is disposed of.

(3) Sections 33 (3) and 34 (2) and subsections (1) and (2) shall apply to a loan within section 33 (2) (c) or 34 (1) (c) as if it, and any loan it replaces, were one loan, and—

(a) references to the application of the proceeds of the loan were references to the application of the proceeds of the original loan, and

(b) any restriction under subsection (1) which applied to any loan which has been replaced applied also to the loan which replaces it.

(4) Sections 33 (2) and 34 (1) shall not apply to a loan unless it is made in connection with the application of the money and either on the occasion of its application, or within what is in the circumstances a reasonable time from the application of the money, and those subsections shall not apply to a loan the proceeds of which are applied for some other purpose before being applied as described in those subsections.

(5) Interest eligible for relief under sections 33 and 34 shall be deducted from or set off against the income of the borrower for the year of assessment in which the interest is paid, and tax shall be discharged or repaid accordingly and such interest shall not be eligible for relief under any provision of the Income Tax Acts apart from those sections.

Relief to individuals on loans applied in acquiring interest in a partnership.

36. —(1) This section applies to a loan to an individual to defray money applied—

(a) in purchasing a share in a partnership, or

(b) in contributing money to a partnership by way of capital or a premium, or in advancing money to the partnership, where the money contributed or advanced is used wholly and exclusively for the purposes of the trade or profession carried on by the partnership, or

(c) in paying off another loan where relief could have been obtained under this section for interest on that other loan if it had not been paid off (on the assumption, if the loan was free of interest, that it carried interest).

(2) Relief shall be given in respect of any payment of interest by the individual on the loan—

(a) if throughout the period from the application of the proceeds of the loan until the interest was paid he has personally acted in the conduct of the trade or profession carried on by the partnership as a partner therein, and

(b) if he shows that in that period he has not recovered any capital from the partnership, apart from any amount taken into account under the next following subsection.

(3) If at any time after the application of the proceeds of the loan the individual has recovered any amount of capital from the partnership without using that amount in repayment of the loan, he shall be treated for the purposes of this section as if he had at that time repaid that amount out of the loan, and so that out of the interest otherwise eligible for relief and payable for any period after that time there shall be deducted an amount equal to interest on the amount of capital so recovered. If part only of such a loan fulfils the conditions in this section, so as to afford relief for interest on that part, the deduction to be made under this subsection shall be made wholly out of interest on that part.

(4) The individual shall be treated as having recovered an amount of capital from the partnership if—

(a) he receives a consideration of that amount or value for the sale of any part of his interest in the partnership, or

(b) the partnership returns any amount of capital to him or repays any amount advanced by him, or

(c) he receives a consideration of that amount or value for assigning any debt due to him from the partnership.

In the case of a sale or assignment otherwise than by way of a bargain made at arm's length, the sale or assignment shall be deemed to be for consideration of an amount equal to the market value of what is disposed of.

(5) Subsections (2), (3) and (4) shall apply to a loan within subsection (1) (c) as if it, and any loan it replaces, were one loan, and—

(a) references to the application of the proceeds of the loan were references to the application of the proceeds of the original loan, and

(b) any restriction under subsection (3) which applied to any loan which has been replaced applied also as respects the loan which replaces it.

(6) Subsection (1) shall not apply to a loan unless it is made in connection with the application of the money, and either on the occasion of its application, or within what is in the circumstances a reasonable time from the application of the money, and that subsection shall not apply to a loan the proceeds of which are applied for some other purpose before being applied as described in that subsection.

(7) Interest eligible for relief under this section shall be deducted from or set off against the income of the individual for the year of assessment in which the interest is paid, and tax shall be discharged or repaid accordingly, and such interest shall not be eligible for relief under any provision of the Income Tax Acts apart from this section.

Interest on borrowings to replace capital withdrawn in certain circumstances from a business.

37. —If at any time after the 10th day of January, 1974, a person borrows money to replace, in whole or in part, capital in any form formerly employed in any trade, profession or other business carried on by him tax in respect of the profits or gains of which is charged under Schedule D, and which capital was, after the 10th day of January, 1974, but within the five years preceding the date of replacement, withdrawn from such use for use otherwise than in connection with a trade, profession or other business carried on by him, interest on such borrowed money shall not be regarded as interest wholly and exclusively laid out or expended for the purposes of a trade, profession or other business.

Aggregation of interest paid by connected persons.

38. —(1) In relation to connected persons the references in section 496 (2) of the Income Tax Act, 1967 , and sections 44 and 52 to £500 and £2,000 shall in the case of each such person be taken to be references to the proportion of £500 or £2,000, as the case may be, which the interest paid by that person bears to the aggregate of the interest paid by all the connected persons.

(2) For the purposes of this section a person is connected with an individual if that person is the individual's husband or wife and a company shall be regarded as connected with an individual or with another company if it would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 .

Arrangements for payment of interest less tax or of fixed net amount.

39. —(1) It is hereby declared that any provision made before or after the passing of this Act, whether orally or in writing, for the payment of interest “less tax”, or using words to that effect, is to be construed, in relation to interest payable without deduction of tax, as if the words “less tax”, or the equivalent words, were not included.

(2) In relation to interest on which the recipient is chargeable to tax under Schedule D, and which is payable without deduction of tax, any provision, made before or after the passing of this Act, whether orally or in writing and however worded, for the payment of interest at such a rate (referred to subsequently in this subsection as the “gross rate”) as shall, after deduction of tax at the standard rate of tax for the time being in force, be equal to a stated rate, shall be construed as if it were a provision requiring the payment of interest at the gross rate.

Allowance of interest as a business expense.

40. —(1) In computing for the purposes of tax for the year 1974-75 or any subsequent year of assessment the profits or gains arising from a trade or profession in a basis period falling wholly or partly before the 10th day of January, 1974, there may, subject to section 61 of the Income Tax Act, 1967 , be deducted—

(a) the gross amount of any annual interest paid under deduction of tax before the 10th day of January, 1974, in respect of a period ended before that date, and

(b) the amount of any interest paid to a bank or a person carrying on business as a member of a stock exchange or of a discount house relief for which was allowed under section 496 of the Income Tax Act, 1967 , for the year of assessment in which the interest was paid.

(2) In this section “basis period” in relation to any year of assessment means the period the profits or gains of which are taken into account in charging tax under Case I or Case II of Schedule D on the profits or gains of the trade or profession for that year of assessment.

(3) It is hereby declared that, subject to subsection (1), relief in respect of any payment of interest shall not be given under the said section 496 and in computing the profits or gains of a trade or profession.

Tax avoidance: transactions associated with loans or credit.

41. —(1) This section applies as respects any transaction effected with reference to the lending of money or the giving of credit, or the varying of the terms on which money is lent or credit is given, or which is effected with a view to enabling or facilitating any such arrangement concerning the lending of money or the giving of credit.

This subsection has effect whether the transaction is effected between the lender or creditor and the borrower or debtor, or between either of them and a person connected with the other or between a person connected with one and a person connected with the other.

(2) If the transaction provides for the payment of any annuity or other annual payment, not being interest, being a payment chargeable to tax under Schedule D, the payment shall be treated for all the purposes of the Income Tax Acts and of the enactments relating to corporation profits tax as if it were a payment of annual interest.

(3) If the transaction is one by which the owner of any securities or other property carrying a right to income agrees to sell or transfer the property, and by the same or any collateral agreement—

(a) the purchaser or transferee, or a person connected with him, agrees that at a later date he will sell or transfer the same or any other property to the first-mentioned person, or a person connected with him, or

(b) the first-mentioned person, or a person connected with him, acquires an option, which he subsequently exercises, to buy or acquire the same or any other property from the said purchaser or transferee or a person connected with him,

then, without prejudice to the liability of any other person, the first-mentioned person shall be chargeable to tax under Case IV of Schedule D on an amount equal to any income which arises from the first-mentioned property at any time before the repayment of the loan or the termination of the credit.

(4) If under the transaction a person assigns, surrenders or otherwise agrees to waive or forego income arising from any property (without a sale or transfer of the property) then, without prejudice to the liability of any other person, he shall be chargeable to tax under Case IV of Schedule D on a sum equal to the amount of income assigned, surrendered, waived or foregone.

(5) If credit is given for the purchase price of any property, and the rights attaching to the property are such that, during the subsistence of the debt, the purchaser's rights to income from the property are suspended or restricted, he shall be treated for the purposes of subsection (4) as if he had surrendered a right to income of an amount equivalent to the income which he has in effect foregone by obtaining the credit.

(6) The amount of any income payable subject to deduction of tax at the standard rate shall be taken for the purposes of subsection (4) as the amount before deduction of that tax.

(7) References in this section to connected persons shall be construed in accordance with section 16 (2) of the Finance (Miscellaneous Provisions) Act, 1968 .

Amendment of section 61 of Income Tax Act, 1967.

42. —(1) Section 61 (l) of the Income Tax Act, 1967 , is hereby amended by the deletion of “any annual interest, or” and by the insertion after “payment” of “(other than interest)” and the said section 61 (l), as so amended, is set out in the Table to this section.

(2) This section shall apply for the year 1974-75 and subsequent years of assessment to any payment of annual interest whenever made and for the year 1973-74 to any payment of annual interest in respect of any period beginning on or after the 10th day of January, 1974.

TABLE

(l) any annuity, or other annual payment (other than interest) payable out of the profits or gains;

Amendment of section 75 of Income Tax Act. 1967.

43. Section 75 of the Income Tax Act, 1967 , is hereby amended by the addition of the following subsections—

“(3) Interest on a debt which having been payable subject to deduction of tax ceases at any time to be so payable shall be deemed to arise from a separate source acquired by the creditor at that time and subsection (1) shall not apply to such interest.

(4) Interest on a debt which having been payable in full begins at any time to be payable subject to deduction of tax shall be deemed to have arisen from a separate source which the creditor ceased to possess at that time and subsection (1) shall not apply to such interest.”.

Amendment of section 76 of Income Tax Act, 1967.

44. —In relation to annual interest in respect of any period beginning on or after the 10th day of January, 1974, section 76 (1) (c) of the Income Tax Act, 1967 , shall not apply—

(a) for the year of assessment 1973-74, to the excess of the interest over £500, or

(b) for the year of assessment 1974-75, or for any subsequent year of assessment, to the excess of the interest over £2,000.

Amendment of section 77 of Income Tax Act, 1967.

45. Section 77 (3) of the Income Tax Act, 1967 , is hereby amended by the substitution for “subsection (2)” of “subsection (2) or (4)” and the said section 77 (3), as so amended, is set out in the Table to this section.

TABLE

(3) If in any year of assessment any person charged or chargeable in respect of income or profits under Case III of Schedule D ceases to possess the whole of such single source of income or profits as is mentioned in section 75 (1) or any of the sources the income of which is directed to be separately computed under subsection (2) or (4) of that section, section 58 (5) shall, subject to the necessary modifications, apply in any such case as if the cesser of the possession of such single source or separate sources, as the case may be, were the discontinuance of a trade.

Application of section 81 of Income Tax Act, 1967, to certain income arising outside State.

46. —Notwithstanding the foregoing provisions of this Chapter, income arising outside the State which if it had arisen in the State would be chargeable under Case V of Schedule D shall be deemed to be income to which the provisions of section 81 of the Income Tax Act, 1967 , so far as they relate to deductions to be made by reference to subsection (5) (e) of that section, apply.

Amendment of section 219 of Income Tax Act, 1967.

47. Section 219 of the Income Tax Act, 1967 , is hereby amended by the substitution for subsection (1) of the following subsection:

“(1) It is hereby declared that in computing, for the purposes of Case I of Schedule D, the profits or gains of a society there are to be deducted as expenses any sums which—

(a) represent a discount, rebate, dividend, or bonus granted by the society to members thereof or other persons in respect of amounts paid or payable by or to them on account of their transactions with the society being transactions which are taken into acount in the said computation, and are calculated by reference to the said amounts or to the magnitude of the said transactions and not by reference to the amount of any share or interest in the capital of the society;

(b) are share or loan interest paid by the society being interest wholly and exclusively laid out or expended for the purposes of the trade.”.

Paragraph (b) shall apply for the year 1974-75 and subsequent years of assessment to any payment of annual interest whenever made and for the year 1973-74 to any payment of annual interest in respect of any period beginning on or after the 10th day of January, 1974.

Amendment of section 221 of Income Tax Act, 1967.

48. Section 221 (2) of the Income Tax Act, 1967 , is hereby amended—

(a) by the insertion after the first subparagraph of paragraph (c) of the following proviso:

“Provided that in a case to which section 220 does not apply no deduction shall be made in relation to interest in respect of any period beginning on or after the 10th day of January, 1974—

(a) for the year of assessment 1973-74, on the excess of the interest over £500, or

(b) for the year of assessment 1974-75, or for any subsequent year of assessment, on the excess of the interest over £2,000.”,

(b) by the insertion after paragraph (e) of the following proviso:

“Provided that in relation to interest in respect of any period beginning on or after the 10th day of January, 1974, the aggregate of the appropriate proportions of that interest shall not exceed—

(a) for the year of assessment 1973-74, the sum of £500, or

(b) for the year of assessment 1974-75, or for any subsequent year of assessment, the sum of £2,000.”, and

(c) by the addition to paragraph (g) of “or as a deduction authorised under section 81 (5) (e).”,

and the said paragraphs, as so amended, are set out in the Table to this section.

TABLE

(2) (c) Where in any year of assessment a society pays share interest or loan interest (other than loan interest in respect of which a claim such as is mentioned in paragraph (a) is made) without deduction of tax in accordance with subsection (1), it may claim, in a case in which section 220 applies, that the appropriate proportion of the total amount so paid, or, in any other case, that the total amount so paid, be deducted from its total income for that year and, where such a claim is made, any appropriate relief from tax shall be given by repayment or otherwise.

Provided that in a case to which section 220 does not apply no deduction shall be made in relation to interest in respect of any period beginning on or after the 10th day of January, 1974—

(a) for the year of assessment 1973-74, on the excess of the interest over £500, or

(b) for the year of assessment 1974-75, or for any subsequent year of assessment, on the excess of the interest over £2,000.

Section 307 (5) (6) shall apply to a claim under this paragraph as those subsections apply to a claim under section 307, except that it shall not be necessary to use a prescribed form.

(2) (e) In this subsection “the appropriate proportion” of any amount of interest or annual payment paid by a society in a year of assessment means the portion of that amount which bears to the whole the same proportion as the amount of the society's total income for the year bears to what would, but for section 220, have been the amount of the society's total income for that year.

Provided that in relation to interest in respect of any period beginning on or after the 10th day of January, 1974, the aggregate of the appropriate proportions of that interest shall not exceed—

(a) for the year of assessment 1973-74, the sum of £500, or

(b) for the year of assessment 1974-75, or for any subsequent year of assessment, the sum of £2,000.

(2) (g) Any reference in the foregoing provisions of this subsection to loan interest or other interest does not include a reference to interest which is allowable as a deduction in the computation of the profits or gains of a trade carried on by the society or as a deduction authorised under section 81 (5) (e).

Amendment of sections 231, 232 and 233 of Income Tax Act, 1967.

49. —(1) Sections 231 (4) (a), 232 (2) and 233 (2) (a) of the Income Tax Act, 1967 , are hereby amended by the substitution of “an annual payment” for “a payment of interest” in each place where it occurs and the said sections 231 (4) (a), 232 (2) and 233 (2) (a), as so amended, are set out in the Table to this section.

(2) This section shall be deemed to have come into force and shall take effect as on and from the 6th day of April, 1973.

TABLE

(4) (a) Section 434 shall apply to any payment made in respect, or on account, of the excess as if such payment were an annual payment charged to tax under Schedule D not payable out of profits or gains brought into charge to tax, and tax shall accordingly be deducted by and recoverable from the person by or through whom the payment is made.

(2) Where, under a retirement benefits scheme in relation to which this section applies, any benefit is provided, otherwise than by way of non-commutable pension or annuity, on the death during his service of a director or employee and the total value of all benefits so provided under that scheme and under all other schemes exempt from the operation of section 227, subsisting in connection with the body corporate, exceeds the amount which would have satisfied the condition specified in section 229 (1) (i) section 434 shall apply to any payment made in respect, or on account, of such excess as if the payment were an annual payment charged to tax under Schedule D not payable out of profits or gains brought into charge to tax, and tax shall accordingly be deducted by and recoverable from the person by or through whom the payment is made.

(2) Where any contributions made by a director or employee under an approved scheme within the meaning of subsection (1) are repaid to him during his lifetime—

(a) section 434 shall apply to the amount of the contributions repaid as if it were an annual payment charged to tax under Schedule D not payable out of profits or gains brought into charge to tax, and tax shall accordingly be deducted by and recovered from the person by or through whom the repayment is made,

Restriction of sections 433 and 434 of Income Tax Act, 1967.

50. —(1) Subject to the provisions of subsection (2) and sections 30 and 31 , sections 433 and 434 of the Income Tax Act, 1967 , so far as they relate to interest of money, shall not apply to any such interest in respect of any period beginning on or after the 10th day of January, 1974.

(2) Subsection (1) shall not apply to interest on any loan secured by an instalment promissory note signed before the 6th day of April, 1974, under the terms of which the borrower promised to make periodic payments which include a sum representing interest after deduction of income tax therefrom at the rate for the time being in force.

(3) In subsection (2) “interest” means—

(a) in the case of a loan the terms of which provide for the payment of interest “less tax” or use words to that effect, the interest which would be payable if the words “less tax” or the equivalent words were not included, and

(b) in the case of a loan the terms of which provide for the payment of interest at such a rate (subsequently referred to as the gross rate) as, after deduction of tax at the rate for the time being in force, is equal to a stated rate, interest at the gross rate.

(4) Payments of such interest as is referred to in subsection (2) in respect of any period beginning on or after the 10th day of January, 1974, shall be deemed to be payments not made out of profits or gains brought into charge, whether or not they are such payments, and subsections (2) to (5) of section 434 of the Income Tax Act, 1967 , shall apply to the said payments as they apply to payments specified in subsection (1) of that section.

Amendment of section 535 of Income Tax Act, 1967.

51. —(1) Section 535 (1) (b) of the Income Tax Act, 1967 , is hereby amended by the deletion of “annual interest” and by the insertion after “annual payment” of “(other than interest)” and the said section 535 (1) (b), as so amended, is set out in the Table to this section.

(2) This section shall apply for the year 1974-75 and subsequent years of assessment to any payment of annual interest whenever made and for the year 1973-74 to any payment of annual interest in respect of any period beginning on or after the 10th day of January, 1974.

TABLE

(1) (b) no deduction shall be made on account of any annuity or other annual payment (other than interest) to be paid out of such profits or gains in regard that a proportionate part of the tax is allowed to be deducted on making any such payment.

Restriction of Schedule 6 to Income Tax Act, 1967.

52. —In relation to annual interest in respect of any period beginning on or after the 10th day of January, 1974, paragraph 1 (2) of Part III of Schedule 6 to the Income Tax Act, 1967 , shall not apply—

(a) for the year of assessment 1973-74, to the excess of the interest over £500, or

(b) for the year of assessment 1974-75, or for any subsequent year of assessment, to the excess of the interest over £2,000.

Application to corporation profits tax.

53. —(1) The foregoing provisions of this Chapter shall, with any necessary modifications, apply for the purposes of corporation profits tax.

(2) Section 53 (2) of the Finance Act, 1920, is hereby amended by the addition to the proviso of the following paragraph:

“(l) subject to section 53 (1) of the Finance Act, 1974, any deduction allowed in respect of interest paid in respect of any period beginning on or after the 10th day of January, 1974, not being interest wholly and exclusively laid out or expended for the purposes of a trade or profession, or other business the income from which consists wholly or mainly of profits or gains chargeable under Case V of Schedule D, shall not exceed an amount calculated at the rate of £2,000 per annum.”.