The first two quoted sections of SAIM deal with when interest arises. The peculiarity of the charge on interest is that it “arises” not at the point at which it becomes due and payable in law (as it does for most other sources of income) but when it is “received”. So waiving it must take place effectively in law before it is received and SAIM2400 and 2440 indicate when interest is received in their view. The examples they give are not exhaustive, I would expect they would say.
2450 indicates that apart from specific legislation interest not yet received will be capital to the assignees if properly assigned. You are concerned with waiver but 2450 indirectly emphasises the tax point for interest in that if the assignor acts before receipt he will not be taxable on it when it is paid to the assignee who will be taxed on it. He cannot claim a deduction against the interest for any price of obtaining the assignment. AIS, if applicable, rectifies that as regards the type of securities it covers: see HS343.
So to extinguish altogether the obligation of a debtor to pay interest the creditor must waive it before it is received and 2400 and 2440 go some way to indicating when HMRC think that may occur. As HMRC do not indicate that the Manual contents are exhaustive of the point, and because they have been known to argue at Tribunal that their Manual views are wrong in law and cannot bind them, I would myself urge a waiver to be made before the interest accrues but strictly it can still be done before receipt provided the lack of receipt can be demonstrated unambiguously. For example, the absence of a right to draw on an account to which it has been credited is unambiguous.
As regards the requisite formalities, HMRC set out their view in IHTM1910 which I accept as correct in law. In context this is about loan principal but I see no difference as regards accrued but unpaid interest on a loan either separately or as part of the entirety.
There is a discussion at https://trustsdiscussionforum.co.uk/t/waiving-statutory-interest-on-legacies/22321 which may be useful and cites the important Parkside Leasing case.
Jack Harper
I’m researching the income tax effect of waiving interest on a loan, and google brought me to this conversation. It says above (per @jack):
The only way to to avoid income tax is to waive it before it falls due and payable. If that has occurred it will be too late. SAIM 2400, 2440 and 2450.
That seems to be saying that the Revenue’s manuals tell us that interest will not be income-taxable if waived before it falls due and payable. But I’ve read all three of SAIM2400, SAIM2440 and SAIM2450 and cannot see that they say this. And doing a “find” on all three pages for “waive” gets no hits.
Is there in fact authority for that proposition in the revenue’s manual? Or somewhere else? I’d be grateful for any thoughts where I should look.
Kind regards, Andrew
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Previous Replies
Paul, it encourages readers to believe that they can only waive a dividend 12 months or earlier prior to the date of payment for interim/ declaration date for payment for final. Why don’t they add in IHTM04220 "But…? At least Capital Taxes is inhabited by specialists and not by the staff of variable quality of other departments.
Jack Harper