Finance Act, 1974

Rules relating to recovery of capital.

35.—(1) If at any time after the application of the proceeds of a loan to which section 33 or 34 applies the investing company or the individual (referred to subsequently in this section as the borrower) has recovered any amount of capital from the company concerned or from a connected company without using that amount in repayment of the loan, the borrower shall be treated for the purposes of this section as if he had at that time repaid that amount out of the loan, and so that out of the interest otherwise eligible for relief and payable for any period after that time there shall be deducted an amount equal to interest on the amount of capital so recovered. If part only of such a loan fulfils the conditions in section 33 or 34 so as to afford relief for interest on that part, the deduction to be made under this subsection shall be made wholly out of interest on that part.

(2) The borrower shall be treated as having recovered an amount of capital from the company or from a connected company if—

(a) the borrower receives consideration of that amount or value for the sale of any part of the ordinary share capital of the company or of a connected company or any consideration of that amount or value by way of repayment of any part of that ordinary share capital, or

(b) the company or a connected company repays that amount of a loan or advance from him, or

(c) the borrower receives consideration of that amount or value for assigning any debt due to him from the company or from a connected company.

In the case of a sale or assignment otherwise than by way of a bargain made at arm's length, the sale or assignment shall be deemed to be for consideration of an amount equal to the market value of what is disposed of.

(3) Sections 33 (3) and 34 (2) and subsections (1) and (2) shall apply to a loan within section 33 (2) (c) or 34 (1) (c) as if it, and any loan it replaces, were one loan, and—

(a) references to the application of the proceeds of the loan were references to the application of the proceeds of the original loan, and

(b) any restriction under subsection (1) which applied to any loan which has been replaced applied also to the loan which replaces it.

(4) Sections 33 (2) and 34 (1) shall not apply to a loan unless it is made in connection with the application of the money and either on the occasion of its application, or within what is in the circumstances a reasonable time from the application of the money, and those subsections shall not apply to a loan the proceeds of which are applied for some other purpose before being applied as described in those subsections.

(5) Interest eligible for relief under sections 33 and 34 shall be deducted from or set off against the income of the borrower for the year of assessment in which the interest is paid, and tax shall be discharged or repaid accordingly and such interest shall not be eligible for relief under any provision of the Income Tax Acts apart from those sections.