CLAUSE 55: STUDENT LOANS: CERTAIN INTEREST TO BE DISREGARDED
1. The purpose of this clause is to exempt from tax certain interest which will be paid by the Student Loans Company to borrowers under the income-contingent student loans scheme. If a borrower repays more than the amount owing, he or she will get a refund from the Student Loans Company, and interest will be added to the refund. The clause exempts this interest from tax, so ensuring that the effective rate of interest will match that payable on the loans themselves.
DETAILS OF THE CLAUSE
2. The Clause inserts a new section 331A into the Taxes Act 1988.
3. Subsection (1) of the new section provides for interest to be disregarded for all tax purposes where it is added to refunds of student loan repayments.
4. Subsection (2) specifies the provisions under which the loans, and payments in connection with them, are made.
5. Borrowers will start making repayments of loans under the income-contingent student loans scheme will start being made from April 2000. Draft regulations covering repayment arrangements generally are to be published in the Spring.
6. For borrowers who pay tax under PAYE, the Inland Revenue will collect the repayments, based on income, from their employers. If at the end of the loan the borrower turns out to have paid too much, he or she will get a refund with interest.
7. Interest received on refunds would normally be taxed as income. Exempting any interest paid with refunds of repayments will both simplify the scheme and ensure that the effective rate of interest will match that payable on the loans themselves (the rate of interest will be the increase in the RPI over the period).
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