Commentary on Sections Overview Overview Section 386: Loans partly meeting requirements
1067.This section explains what happens if a loan (“the mixed loan”) is only partly used for a qualifying purpose. It is based on section 367(4) of ICTA.
1068.Subsection (1) explains that the qualifying part of the loan is itself treated as a loan within this Chapter.
1069.Subsection (2), read withsubsection (4), provides that in respect of a mixed loan within subsection (1) only interest on the part of the loan used for qualifying purposes is eligible for relief. The apportionment is made in a way that reflects the application of the money at the time the loan is used.
1070.Subsection (3), read withsubsection (4), provides that if part of the loan is repaid, then the qualifying and non-qualifying parts of the original loan are treated as repaid in the same proportions that the loan was first used. A stricter rule applies in a case where there is a recovery of capital which was the subject of a qualifying investment (see section 406(4)).
1071.The rule dealing with partial repayments is based on section 367(4) of ICTA, but modified so as to apply to all cases. See Change 66 in Annex 1.