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HMRC internal manual

Employment Income Manual

Deductions from earnings: capital allowances: procedures: capital allowances and loan interest relief

Section 359(3) and (4) ICTA 1988An employee may use a loan to buy machinery or plant. If the expenditure qualifies for capital allowances (see

EIM36520) the employee can also be given relief for the interest payable on the loan (see RE402).

The loan interest relief depends on the employee’s entitlement to capital allowances, not on whether such allowances are actually claimed. It may happen, for example, that an employee refrains from claiming allowances for a particular year (see EIM32860). In such a case the employee would still be able to claim loan interest relief.

Employees cannot claim capital allowances for motor vehicles or bicycles after 5 April 2002 (see EIM36520). It follows that they also cannot claim loan interest relief, for 2002/03 onwards, on a loan obtained to purchase a motor vehicle or bicycle.