Taxes Consolidation Act 1997 section 254

Interest on borrowings to replace capital withdrawn in certain circumstances from a business

Section 254 denies a tax deduction for interest on money borrowed to replace capital that was previously withdrawn from a business.

• Where a person borrows money to replace capital that was formerly used in a trade, profession or other business, the interest on that borrowing is not deductible as a business expense.
• This restriction applies where the original capital was withdrawn from the business for non-business purposes within the five years preceding the date it was replaced by the borrowed funds.
• The provision targets situations where capital is taken out of the business for private use and then substituted with loan finance in an attempt to secure a tax deduction for the interest.
• The denial of relief applies to any business the profits or gains of which are charged to tax under Schedule D.