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HMRC internal manual

Savings and Investment Manual

From
HM Revenue & Customs
Updated
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Relief for interest paid: loans to buy plant or machinery

Loans to buy plant or machinery: ITA07/S388-391

An individual who is a member of a partnership carrying on a trade, profession or ordinary property business can claim relief for the interest paid on a loan to buy plant or machinery used in the partnership’s trade, profession or ordinary property business.

Similarly, an individual can claim relief for the interest paid on a loan to buy plant or machinery for use in carrying out the duties of his or her office or employment.

Conditions for relief

The conditions for relief are similar, in both cases the individual partner or employee must own the plant and machinery and be the person paying the interest.

The plant or machinery must be such that the partnership (in the case of the partner) or the individual (in the case of the employee) is entitled to capital allowances or liable to balancing charges on it. ITA07/ S388(3) and S390(3) ensure that relief remains available where the plant or machinery remains within the capital allowances regime even if no allowances or balancing charges arise in the period of account (for partnerships) or tax year (for an employee).

Contributions to wear and tear

An employee is treated as entitled to capital allowances or liable to balancing charges on plant or machinery if he or she would have been so entitled had his or her employer not made a contribution to wear and tear. Guidance about employers’ contributions to wear and tear is at SE36770.

Timing of interest payment

For both an individual partner or employee, the interest must fall due and payable not later than three years after the end of the period of account (for the partner) or the tax year (for the employee) in which the loan was made.

Mixed use

Where the plant or machinery is not used wholly for the purposes of the employment, office or business the relief is restricted in proportion to the non-business use. The capital allowances claim will be similarly restricted and the same private use fraction as in the capital allowances computation can be applied.