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HMRC internal manual

Savings and Investment Manual

Relief for interest paid: interest in a close company

Loan to buy interest in a close company

ITA07/S392 gives relief for interest paid on a loan applied:

  • in acquiring any part of the ordinary share capital of a close company (see CTM60000 onwards and SAIM10220) including shares acquired before a material interest is obtained (see SAIM10240),
  • in lending money to a company, which is used wholly and exclusively for the purposes of its business or that of any associated close company qualifying under ITA07/S393 (see SAIM10220). ‘Associated company’ has the same meaning as in ICTA88/S416 (1) (see (g) of CTM60310). Lending to a close company would include using a loan to acquire convertible loan stock in the company, provided the other conditions for relief are satisfied, or
  • in paying off another loan if interest on that loan would have been eligible for relief if it had continued. ITA07/S408 provides that in such a case, the loans are, for the purpose of the rules in ITA07/S392, to be treated as if they were one loan.

Cases where relief is not due

Relief is not due where the individual who acquires the shares, or his or her spouse or civil partner, makes a claim for relief under the Enterprise Investment Scheme under Part 5 of ITA07 or under Schedule 5B TCGA92.

Companies resident in the European Economic Area (EEA)

The definition of a close company excludes non-UK resident companies from being ‘close’. FA14 extends the relief to interest payments on loans applied as above to invest in companies resident in the EEA which would be close if they were resident in the UK. The change applies for payments made on or after 6 April 2014.