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HMRC internal manual

Savings and Investment Manual

Relief for interest paid: interest in a close company: ‘eligibility requirements’

Eligibility for interest relief on loans to buy interest in a close company

ITA07/S393 sets out the following two conditions for relief:

  • when the interest is paid the company must not be a close investment holding company, and
  • both the ‘capital recovery condition’ (SAIM10250) and either the ‘full time working condition’ (SAIM10230) or the ‘material interest condition’ (SAIM10240) must be met.

The company must therefore have been a close company for tax purposes throughout the period beginning immediately after the application of the money and ending with the payment of interest giving rise to the claim for relief.

SP3/78 provides that relief should not be refused in a case where, after the application of any loan, the company ceases to be close, provided that all the other conditions for relief, including those referred to in SAIM10250, are satisfied.

Close investment holding companies

CTM60700 onwards has guidance on close investment holding companies.

No relief under ITA07/S392 is due unless at the time the ordinary share capital is acquired and when the interest is paid the company exists wholly or mainly for one of the purposes listed at (a) - (f) of CTM60710. A company will exist wholly or mainly for a particular purpose if at the requisite time that ‘purpose’ is the end or ultimate object of the company (see the case of Lord v Tustain (65TC761)). As regards companies which commence liquidation, see CTM60780.