Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Savings and Investment Manual

From
HM Revenue & Customs
Updated
, see all updates

Relief for interest paid: interest in a close company: ‘capital recovery condition’: example

Recovery of capital: example

On 1 July 2006, Jane buys 10% of the ordinary share capital of Widgets Ltd, a close trading company, for £10,000. She meets the cost using a loan of £15,000 obtained a few days earlier, bearing interest at 10% per annum, payable half-yearly. She pays interest on the loan as follows:

31 December 2006 £750
   
30 June 2007 £750
31 December 2007 £750

 

She was engaged for the greater part of her time in the management of Widgets Ltd in the period from 1 July 2006 to 31 December 2007.

If, on 1 July 2007, she sold one half of her shares for £6,000, relief could be claimed as follows:

2006-07 £750 x £10,000 = £500
       
    £15,000  

2007-08

Interest paid 30 June 2007 £750 x £10,000 = £500
       
    £15,000  
Interest paid 31 December 2007 £750 x £10,000 = £500
       
    £15,000  
Less £6,000 x 10% x ½ =£(300)
   
  =£200*
Relief due for 2007-08 £700
  • This is £4,000 (£10,000 - £6,000) at 10% x ½.

If there are no further transactions and Jane continues to be a shareholder who is engaged for the greater part of her time in the management of the company, relief may be claimed for 2008-09 on £400 (£4,000 at 10%).