Section 40 | Interest charged to capital.

(1)Where—

(a)a company incurs expenditure on the construction of any building, structure or works, being expenditure allowable as a deduction under section 38 in computing a gain accruing to the company on the disposal of the building, structure or work, or of any asset comprising it, and

(b)that expenditure was defrayed out of borrowed money,

the sums so allowable under section 38 shall, subject to subsection (2) below, include the amount of any interest on that borrowed money which is referable to a period or part of a period ending on or before the disposal.

(2)Subsection (1) above has effect subject to section 39 and does not apply to interest which is a charge on income.

(3)In relation to interest paid in any accounting period ending before 1st April 1981 subsection (1) above shall have effect with the substitution for all following paragraph (b) of—

(c)the company charged to capital all or any of the interest on that borrowed money referable to a period or part of a period ending on or before the disposal,

;and subsection (2) above shall not apply.

(4)In consequence of Chapter 2 of Part 4 of the Finance Act 1996 (c. 8) (loan relationships) and CTA 2009 (Part 5 of which re-enacts that Chapter) this section does not have effect in relation to interest referable to an accounting period ending on or after 1st April 1996.^F1F2