Part 8Other reliefs
Chapter 1Interest payments
Loans for interests in employee-controlled companies
396Loan to buy interest in employee-controlled company
1
This section applies to a loan to an individual that is used in one or more of the ways specified in subsection (2).
2
The ways are—
F3a
acquiring part of the ordinary share capital of a company that first becomes an employee-controlled company—
i
after the date of acquisition, or
ii
not earlier than 12 months before that date, and
b
repaying another loan to which this section applies.
3
For the purposes of this section and section 397, a company is employee-controlled at any time when—
a
more than 50% of the issued ordinary share capital of the company is owned beneficially by persons who are full-time employees of the company, and
b
more than 50% of the voting power in the company is so owned.
4
If an individual owns beneficially more than 10% of the issued ordinary share capital of, or voting power in, a company, for the purposes of subsection (3) the excess is treated as being owned by an individual who is not a full-time employee of the company.
5
In this section and section 397 “full-time employee”, in relation to a company, means an individual the greater part of whose time is spent working as an employee or director of the company or of a 51% subsidiary of the company.
6
This section is subject to section 411 (ineligibility of interest where business is occupation of commercial woodlands).
397Eligibility requirements for interest on loans within section 396
1
Interest on a loan within section 396 to an individual is eligible for relief only if conditions A to D are met.
2
Condition A is that the company is, throughout the period beginning with the date on which the shares are acquired and ending with the date on which the interest is paid (“the payment date”)—
F2a
an unquoted company that is resident in the United Kingdom or F1anEEA state and is not resident outside the European Economic Area, and
b
a trading company or the holding company of a trading group.
3
Condition B is that during the tax year in which the interest is paid the company either—
a
first becomes an employee-controlled company, or
b
is such a company throughout a period of at least 9 months.
4
Condition C is that—
a
the individual is a full-time employee of the company throughout the period beginning with the date on which the loan is used (“the use date”) and ending with the payment date, or
b
the individual ceased to be such an employee not more than 12 months before the payment date and was such an employee throughout the period beginning with the use date and ending with the date the individual ceased to be such an employee.
5
Condition D is that in the period from the use of the loan to the payment of the interest the individual has not recovered any capital from the company, apart from any amount taken into account under section 406(2) (recovered capital that is treated as a repayment of the loan).
6
In this section—
“holding company” means a company whose business (ignoring any trade carried on by it) consists wholly or mainly of the holding of shares or securities of one or more companies which are its 75% subsidiaries,
“trading company” means a company whose business consists wholly or mainly of the carrying on of a trade or trades,
“trading group” means a group the business of whose members taken together consists wholly or mainly of the carrying on of a trade or trades (taking a group to consist of a company with one or more 75% subsidiaries and those subsidiaries), and
“unquoted company” means a company none of whose shares is F4included in the official UK list.