Commentary

E1.827 Qualifying loan interest—loan to invest in a close company

Personal and employment tax

E1.827 Qualifying loan interest—loan to invest in a close company

E1.827 Qualifying loan interest—loan to invest in a close company

Introduction

Income tax relief is available for interest paid on loans taken out by an individual for certain kinds of investment in a close company1.

For an interest payment to qualify for relief, two sets of conditions must be satisfied. First, in relation to the loan itself, there are conditions as to its application and the status of the close company concerned. Secondly, there are conditions that must be satisfied at the time of the interest payment; these relate to the status of the company and its relationship to the individual during the period from the application of the loan up to the date the payment was made.

The commentary below discusses the income tax relief available for interest paid by individuals to acquire an interest in a close company. This should be read in conjunction with E1.820, which includes details about general restrictions that apply to all qualifying loans and the mechanism by which relief is given.

Conditions relating to the company

Meaning of close company

To qualify for relief on interest paid, the company must be a 'close company' that is not a 'close investment-holding company'2. The definition of 'close company' includes a company resident in the European Economic Area (EEA) that would be close if it were UK resident3. For the meaning of close company, see D3.102.

A close company is a close investment-holding company in an accounting period unless the company (referred to as the candidate company) throughout that period

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