Income Tax Act 2007

397 Eligibility 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”)—

(a) an unquoted company that is UK resident and is not resident outside the United Kingdom, 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 listed in the Official List of the Stock Exchange.