This clause retains mortgage interest relief on loans to buy life annuities for loans which were made before 9 March 1999. These loans normally form part of a home income plan. It also deems that a loan made on or after 9 March may be treated as made before that date if it is made in pursuance of an offer in writing made by the lender before that date. This ensures that anyone who was in the process of taking out a loan on 9 March and their application was well advanced will still be entitled to relief.

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Subsection (1) inserts a new subsection (1)(aa) into section 365 of the Income and Corporation Taxes Act (ICTA) 1988. New subsection (1)(aa) ensures that relief for loans used to buy a life annuity continues after 9 March 1999 (Budget Day) only for loans made before that day. This change preserves relief for loans in existence on Budget Day but prevents new loans qualifying for relief.

Subsection (2) inserts a new subsection (1AA) into section 365 ICTA 1988. New subsection (1AA) provides that where a borrower was in the process of taking out a loan to buy a life annuity on 9 March 1999, and that application was well advanced, then the loan may under certain circumstances be treated as if it was made before 9 March 1999. For this to apply there must be written evidence that the lender had agreed to advance the loan before 9 March 1999, even if the loan had not in fact been advanced by that date.

Subsection (3) is a commencement provision. The clause applies for 1998-99 and later years.

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Relief is available for interest on a loan made to an elderly person and used to buy a life annuity if the loan is secured on his or her home. These loans usually form part of a home income plan. The £30,000 limit applies to these loans. Relief on these loans is given at the basic rate of income tax. Most borrowers receive their relief through the MIRAS (Mortgage Interest Relief at Source) scheme, which is operated by the lenders. Borrowers pay a reduced amount of interest, reflecting the gross interest which they are liable to pay less the tax relief due, and lenders recover an amount equal to the tax relief from the Inland Revenue. Borrowers whose loans are not in MIRAS get relief by way of an "income tax reduction" made through a PAYE coding adjustment or in an assessment.

There are approximately 10,000 life annuity loans currently in existence which qualify for tax relief on the interest paid.

Approximately 200 new loans are taken out each year.

The tax relief is worth about £45 a month at a typical interest rate of 8.2 per cent. (8.2 per cent is used as this is typical of the fixed rates available for these loans.)