739LA Profit: financing cost ratio.

(1) In this section—

“adjusted property financing costs” means the property financing costs less any amount of income referred to in subsection (2)(b);

“property financing costs” means costs, being costs of debt finance or finance leases, which are taken into account in arriving at the profits of an IREF, including amounts in respect of—

(a) interest, discounts, premiums, or net swap or hedging costs, and

(b) fees or other expenses associated with raising debt finance or arranging finance leases;

“property financing costs ratio” means the ratio of the sum of profits of an IREF and the adjusted property financing costs of an IREF to the adjusted property financing costs of the IREF;

“relevant cost” means the amount which would be allowable as a deduction for the purposes of the Capital Gains Tax Acts under section 552(1);

“specified debt” means any debt incurred by an IREF in respect of monies borrowed by, or advanced to, the IREF.

(2) (a) This subsection applies where the aggregate of the specified debt exceeds an amount equal to 50 per cent of the relevant cost of the IREF assets (and that excess is referred to in this subsection as the “excess specified debt” ).

(b) Where this subsection applies, the IREF shall be treated for the purposes of the Income Tax Acts as receiving an amount of income determined by the formula—

where—

A x B

C

A is the property financing costs, B is the excess specified debt, and C is the total specified debt.

(3) (a) This subsection applies where the property financing costs ratio of the IREF is less than 1.25:1 for an accounting period.

(b) Where this subsection applies, the IREF shall be treated for the purposes of the Income Tax Acts as receiving an amount of income equal to the amount by which the adjusted property financing costs would have to be reduced for the property financing costs ratio to equal 1.25:1 for that accounting period.

(4) The amount of income referred to in subsections (2) and (3) shall be charged to income tax under Case IV of Schedule D and shall be treated as income—

(a) arising in the year of assessment in which the accounting period in which the amount was taken into account ends, and

(b) against which no loss, deficit, expense or allowance may be set off.