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HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
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Relief for interest paid: interest in a partnership: introduction

Loan to invest in a partnership

ITA07/S398 to ITA07/S400 provides relief to be given to an individual for interest paid on a loan applied in acquiring an interest in a partnership or in providing a partnership with capital or a loan. Such interest is a liability of the individual and not of the partnership and therefore is not allowable as an expense in computing the firm’s profits.

The relief covers loans to

  • buy a share in a partnership,
  • contribute money to the partnership by way of capital or premium,
  • advance money to the partnership,
  • repay another eligible loan to a partnership.

Relief will be due to both a new partner who ‘buys in’ to an existing firm by purchasing the share of an outgoing partner, or by contributing capital in return for being admitted as a partner, and to an existing partner who increases his or her share by ‘buying out’, wholly or in part, the shares of others.

Buying a share in a partnership

‘Share’ implies that the claimant must be a partner but there are no conditions about the extent of his interest in the capital or profits of the partnership. A subscription for capital in a Limited Liability Partnership is also acceptable.

Contributing money to a partnership by way of capital or a premium

A capital contribution will ordinarily be credited to the individual’s capital account in the partnership balance sheet. A premium is a sum contributed over and above the amount credited to the contributor’s capital account and may be retained by the other partners personally.

To qualify, the money must be used wholly and exclusively for the purposes of the partnership business. A premium retained by the other partners personally may fail to satisfy this condition, but in most cases would qualify as buying a share in the partnership.

Advancing money to a partnership

The money must be used wholly and exclusively for the purposes of the partnership’s business.

Repaying another eligible loan

Relief is due if the interest on the original loan would have been eligible for relief had that loan continued. In such a case the loans are treated as if they were one loan (ITA07/S408).