739LC Exclusion for third-party debt.

(1) Where—

(a) an amount of income is treated as arising to an IREF under section 739LA or 739LAA, and

(b) some or all of that amount relates to a third-party debt,

the amount of income on which the IREF is charged to income tax shall be reduced by the amount of income that would have been

charged to tax had the specified debt consisted solely of third-party debt.

(2) (a) Subject to subsection (4), for the purposes of this section, “third- party debt” means—

(i) a loan advanced to the IREF by an enterprise other than an associate of that IREF,

(ii) where the full amount advanced is employed, subject to paragraph (c), in the purchase, development, improvement or repair of a premises, and

(iii) the loan is not subject to any arrangements of a type referred to in subsection (3),

and includes a loan which satisfies the conditions of subparagraphs

(i) and (iii) where the amount advanced is used to repay a loan which satisfied the condition of subparagraph (ii).

(b) References in this section to an amount being advanced to an IREF, or being payable by an IREF, shall be read as including an amount advanced to, or payable by, a partnership in which the IREF is a partner.

(c) For the purposes of paragraph (a)(ii)—

(i) monies borrowed at or about the time of the purchase of the premises shall be treated as having been employed in the purchase of those premises, and

(ii) amounts employed in purchasing a property from an associate of an IREF shall only be treated as third-party debt if immediately prior to the purchase that associate had carried out significant development work on the property, such that the development exceeds 30 per cent of the market value of the property at the date of the commencement of the development, and the property is being acquired by the IREF for the purposes of property rental.

(3) For the purposes of subsection (2)(a)(iii), the arrangements are any of the following:

(a) arrangements pursuant to which—

(i) interest is payable by an IREF to another enterprise such that this section does not apply by virtue only of the fact that the IREF and the enterprise concerned are not associated, and

(ii) interest is payable by some other enterprise not associated with the IREF to an enterprise associated with the IREF;

(b) arrangements pursuant to which—

(i) interest is payable by an IREF to another enterprise (in this paragraph referred to as the “first-mentioned enterprise” ) where

the IREF and the first-mentioned enterprise concerned are not associated, and

(ii) the first-mentioned enterprise—

(I) has been advanced an amount by another enterprise that is an associate of the IREF, or

(II) has received a deposit from another enterprise that is an associate of the IREF,

equal to some or all of the principal amount of the loan in respect of which the interest referred to in subparagraph (i) is payable;

(c) arrangements entered into in relation to an IREF the effect of which is that any amount has been advanced, or funds have been made available, indirectly from an associate of an IREF to the IREF, or interest is payable by an IREF indirectly to an associate of that IREF, in circumstances other than those referred to in paragraph (a) or (b);

(d) arrangements pursuant to which—

(i) associates of an IREF (in this paragraph referred to as the “first- mentioned IREF” ) advance amounts, or make funds available, directly or indirectly to an IREF with whom they are not associated (in this paragraph referred to as the “second- mentioned IREF” ), and

(ii) associates of the second-mentioned IREF advance amounts, or make funds available, directly or indirectly to the first- mentioned IREF,

and those IREFs, or those associates, are acting in concert or under arrangements made by any enterprise.

(4) Notwithstanding section 739KA, a loan which is a third-party debt shall not cease to be so treated where the lender becomes an associate of the IREF solely on account of the enforcement of any security granted as a bona fide condition of, or in connection with, the loan.