Commentary on Sections Example 3 £150(Pe) – £50(E) = £100 Section 177: Exceptions for loans at fixed rate of interest
687.This section exempts certain types of fixed interest loan. It derives from section 161(2) and (3) of ICTA.
688.Subsection (1) applies to loans made on or after 6 April 1978 at fixed rates for fixed periods. It applies when there is an increase in the official rate of interest for a year subsequent to that in which the loan was made. When that happens a calculation under section 182 or section 183 of this Act might show that the interest paid on the loan was less than what would have been paid if the official rate of interest had applied to the loan. In such a case, provided nothing other than the official rate of interest has changed, and provided the condition in subsection (2) is met, the loan is not to be regarded as a taxable cheap loan.
689.Subsection (2) provides as a condition for subsection (1) that the interest paid on the loan for the year in which it was made was not less than what would have been paid at the official rate for that year.
690.Subsection (3) exempts fixed rate loans from being taxable cheap loans if they were made before 6 April 1978, when there was no official rate of interest, and the condition in subsection (4) applies.
691.Subsection (4) sets out the condition for subsection (3), that the interest should be at an arm’s length rate when the loan was made.
692.Subsection (5) defines “fixed rate loan”.