Finance Act 2003 - Loans applied in acquiring interest in companies

Section 22 gives legislative effect to the announcement made by the Minister for Finance in his press release of 19 March 2003 to close off a loophole relating to relief available to individuals in respect of interest paid on money borrowed for the purposes of acquiring an equity stake in, or lending to, a company. The section inserts a new Section 250A TCA 1997 which restricts the availability of interest relief on loans, under Section 248 of that Act. Firstly, the new section will operate where money borrowed by an individual and invested in, or loaned to, a company is used after 1 January 2003 by the company involved, in whole or in part, directly or indirectly, to acquire a specified building (essentially an industrial or commercial building with a remaining tax life) from another company, to replace money used to so acquire, or to pay off a loan used to so acquire. Secondly, the section covers situations where the individual uses borrowed money to pay off another loan or part of a loan where money under that earlier loan was used after 1 January 2003 by the company involved for any of these purposes. Thirdly, the section applies to other situations where an individual acquires share capital in a certain type of rental company on or after 20 February 2004 and the company acquires or had acquired a specified building, on or after 1 January 2003 from another company, without the use of the money borrowed by the individual.

Where the section applies, relief for a year of assessment, under Section 248 TCA 1997, in relation to interest paid by an individual on a loan or part of a loan may not exceed the individual’s return from the company in that year in relation to the “specified” amount of the loan involved. An individual’s return from a company for a year of assessment is the amount, if any, of the distributions or, as applicable, of the interest received by the individual from the company in that year in relation to the specified amount. Generally, the restriction of relief in the section applies to interest payments made by individuals on or after 19 March 2003 except in situations where a loan is used to purchase, on or after 20 February 2004, share capital in the type of rental company referred to above, in which case it applies to interest payments made on or after that date.