This clause applies to payments by the Board of Inland Revenue to borrowers of amounts which borrowers should have been able to deduct under the MIRAS arrangements from their mortgage interest payments but, for whatever reason, were not deducted with the result that the payments were made in full. As a result of this clause, any payment by the Board in respect of an amount which should have been capable of being deducted by the borrower will qualify for repayment supplement under the normal rules. This clause shall be deemed to have had effect in relation to all such payments made from 1984-85 onwards and as such gives statutory effect to an existing Inland Revenue practice.

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Subsection (1) provides for section 824 of the Income and Corporation Taxes Act (ICTA) 1988 to be amended. Section 824 deals with repayment supplement for individuals.

Subsection (2) inserts a new subsection (2B) into section 824. New subsection (2B) ensures that payments made by the Board of Inland Revenue under section 375(8) of ICTA 1988 are treated as payments which attract repayment supplement. Payments under section 375(8) are payments equal to the amounts borrowers were entitled to deduct from their mortgage interest payments.

Subsection (3) inserts a new subsection (3)(aa) into section 824 ICTA 1988. New subsection 824(3)(aa) provides the relevant time for calculating repayment supplement on payments under section 375(8). Repayment supplement is paid for the period from the relevant time to the date of repayment. For pre-Self Assessment years the relevant date is the 5 April after the end of the tax year in which the mortgage interest was paid. For 1996-97 onwards (following the introduction of Self Assessment) the relevant time is the 31January after the end of the tax year in which the mortgage interest was paid.

Subsections (4), (5) and (6) are commencement provisions. Together they ensure the changes shall be deemed to have always had effect for payments made by the Board of Inland Revenue in 1984-85 and later years. The first such payments under section 375(8) were made by the Inland Revenue in 1984-85. Hence the commencement provisions ensure that the existing Inland Revenue practice of paying repayment supplement on these payments is given full statutory cover.

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Relief is currently available for interest on a loan used by the borrower to buy an interest in a property which is used as their only or main residence. Relief is also currently available for interest on loans made, or treated as made, before 6 April 1988 for home improvements and the purchase or improvement of homes for a dependent relative or a former or separated spouse of the borrower. Relief is also available for interest on a loan to an elderly person used to buy a life annuity if the loan is secured on his or her home. 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.

Sometimes loans cannot go straight into the MIRAS arrangements and so the borrower will have to make gross mortgage payments to their lender. If it is eventually agreed that the loan does, and always did, qualify for the MIRAS arrangements the borrower will have made some gross payments which should have been made net of tax relief. These overpaid amounts are paid direct to the borrower by the Inland Revenue. In some cases a considerable period may elapse before the payment is made.

Ever since the MIRAS scheme was introduced in 1983 the Inland Revenue has added repayment supplement to these payments in appropriate cases. However when it was discovered that there was no statutory cover for these payments, the Government decided to bring forward legislation. This legislation simply ensures that repayment supplement can continue to be added to appropriate payments and those who have previously received some supplement can keep it.

No action is needed by borrowers as a result of this change. All those entitled to repayment supplement should have received it when they received their payment from the Inland Revenue.