Taxes Consolidation Act 1997 section 739LC

Exclusion for third-party debt

Section 739LC provides relief from the income tax charge on IREFs under sections 739LA and 739LAA by reducing the taxable amount where some or all of the IREF's debt is genuine third-party debt used for property purposes.

• Where income is treated as arising to an IREF under section 739LA or 739LAA and some or all of that income relates to third-party debt, the taxable amount is reduced by the amount that would have been charged to tax had the IREF's specified debt consisted solely of third-party debt; the reduction applies to charges arising under both the 50% specified debt metric and the property financing costs ratio.
• Third-party debt means a loan from an enterprise that is not an associate of the IREF, where the full amount advanced was used for the purchase, development, improvement or repair of a premises, and the loan is not subject to back-to-back or disguised related-party arrangements; a replacement loan used to repay qualifying debt also qualifies, as do loans advanced to or payable by a partnership of which the IREF is a partner.
• Where property is purchased from an associate of the IREF, the borrowings can only be treated as third-party debt if, immediately before the purchase, the associate had carried out significant development work on the property (costing more than 30% of the market value of the property at the commencement of the development) and the IREF is acquiring the property for the purpose of property rental.
• Arrangements designed to disguise related-party debt as third-party debt are targeted, including back-to-back lending, indirect funding by associates, deposits placed by associates with a lending institution, and reciprocal cross-funding between IREFs whose associates act in concert; however, a genuine third-party loan does not lose its status merely because the lender becomes an associate of the IREF through the bona fide enforcement of loan security.