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HMRC internal manual

Savings and Investment Manual

Relief for interest paid: continuity of relief on business successions

Business successions

Successions between partnerships

ITA07/S409 ensures continuity of relief for interest paid where a partnership is dissolved and on its dissolution another partnership is formed. The rule was formerly in Extra-statutory concession ESC A43.

Under ITA07/S398 relief for interest paid is only available so long as the individual is a partner in the partnership in which the investment is made. In law, the admission or departure of a partner results in a new partnership. ITA07/S409 provides that for the purposes of relief for interest paid, the old and new partnerships are treated as the same partnership. The rule also covers partnership reconstructions involving a merger or demerger.

Other business successions and reorganisations

ITA07/S410 ensures continuity of relief in certain cases where a partnership is incorporated into a close company, an employee-controlled company or co-operative, or where shares in a close company, an employee-controlled company or co-operative are exchanged for, or replaced by, shares in any kinds of these entities. Again, the rule was formerly in ESC A43.

Without this rule, relief for interest paid would only available where the individual remained a partner in the partnership in which the investment was made, or so long as the shares were held in or the loan was made to the original business entity.

Under ITA07/S410 the original loan is treated as if were made at the time of the succession or reorganisation.

Relief is not available where the reorganisation involves the disincorporation of the close company. Relief only applies to genuine business successions. It does not apply if an investment in one entity is replaced by another investment within the same entity, for example, the conversion of convertible loan stock into ordinary shares.