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—
- a
anything that is, or in accordance with generally accepted accounting practice would be, accounted for as partners' capital or partners' equity, and
- b
amounts lent to the partnership by partners or persons connected with partners.
- a
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).