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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific deductions - interest: Partner's capital

This chapter applies for Income Tax purposes to the computation of trade profits and property income. References in the text to a ‘business’ should therefore be taken to include both trades and property businesses. The chapter does not apply for Corporation Tax purposes, where there are separate rules in the loan relationships legislation (see CFM11000).

S34 Income Tax (Trading and Other Income) Act 2005

You should disallow interest on partners’ capital accounts. This interest is an allocation or distribution of profit to a proprietor.

If a partner advances money on loan to his firm for the purposes of the business, the interest payable is allowable as an interest expense to the business and is chargeable as interest on the partner.