Part 8Other reliefs

Chapter 1Interest payments

Loans for investing in partnerships

398Loan to invest in partnership

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—

a

purchasing a share in a partnership,

b

contributing money to a partnership, by way of capital or premium, that is used wholly for the purposes of the trade or profession carried on by the partnership,

c

advancing money to a partnership that is so used, and

d

repaying another loan to which this section applies.

3

This section is subject to section 411 (ineligibility of interest where business is occupation of commercial woodlands).

399Eligibility requirements for interest on loans within section 398

1

Interest on a loan within section 398 to an individual is eligible for relief only if conditions A and B are met.

2

Condition A is that throughout the period from the use of the loan until the interest is paid the individual has been a member of the partnership otherwise than—

a

as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907 (c. 24), or

b

as a member of an investment LLP.

3

Condition B is that in that period the individual has not recovered any capital from the partnership, apart from any amount taken into account under section 406(2) (recovered capital that is treated as a repayment of the loan).

4

If section 400 (film partnerships) applies in a tax year, only 40% of the interest that would otherwise be eligible for relief for that year is eligible.

5

For the purposes of subsection (2) an individual who is not a member of a partnership is treated as such a member if—

a

the partnership carries on a profession,

b

the individual is employed by the partnership in a senior capacity, and

c

the individual is allowed—

i

to act independently in dealing with clients of the partnership, and

ii

to act generally in such a way as to be indistinguishable from the partners in relations with those clients.

6

For the purposes of subsection (2) “investment LLP” means a limited liability partnership—

a

whose business consists wholly or mainly of the making of investments, and

b

the principal part of whose income is derived from investments,

and whether a limited liability partnership is an investment LLP is determined for each period of account of the partnership.

400Film partnerships

1

This section applies in a tax year if—

a

the partnership (“the film partnership”) carries on a trade,

b

the profits or losses of the trade are calculated in accordance with Chapter 9 of Part 2 of ITTOIA 2005 (films etc),

c

the loan is secured on an asset or activity of another partnership (“the investment partnership”),

d

the individual to whom the loan is made (“A”) is or has been a member of the investment partnership, and

e

at any time in the year the proportion of the profits of the investment partnership to which A is entitled is less than the proportion of that partnership's capital contributed by A at that time.

2

For the purposes of subsection (1)(c), a loan is secured on an asset or activity of a partnership if there is an arrangement—

a

under which such an asset may be used or relied upon wholly or partly to guarantee repayment of any part of the loan, or

b

because of which any part of the loan is expected to be repaid directly or indirectly out of assets held by or income accruing to the partnership.

3

In subsection (1)(e)—

  • “profits” excludes any amount that would not be taken into account as, or for the purposes of calculating, income for income tax purposes, and

  • “partnership's capital” means—

    1. a

      anything that is, or in accordance with generally accepted accounting practice would be, accounted for as partners' capital or partners' equity, and

    2. b

      amounts lent to the partnership by partners or persons connected with partners.

4

So far as the investment partnership's capital includes at any time any of the following amounts, they are treated as amounts contributed by A—

a

any amount A paid to acquire any interest in the partnership, so far as A retains the interest at that time,

b

any amount made available by A directly or indirectly to another person, so far as that person retains any interest in the partnership at that time,

c

any amount A lent to the partnership, so far as it has not been repaid at that time,

d

any amount A made available directly or indirectly to another person, so far as any amount that person lent to the partnership has not been repaid at that time, and

e

an amount made available in any other way prescribed by regulations made by the Commissioners for Her Majesty's Revenue and Customs.

5

Regulations under subsection (4)(e)—

a

may make provision having retrospective effect,

b

may make provision generally or only in relation to specified cases or circumstances,

c

may make different provision for different cases or circumstances,

d

may make transitional, consequential or incidental provision, and

e

may be made only if a draft of them has been laid before and approved by a resolution of the House of Commons.

6

In this section a reference to A includes a reference to a person connected with A.

7

Section 993 (meaning of “connected” persons) applies for the purposes of this section with the omission of subsections (3) to (7).