Finance Act 1989

Interest E+W+S+N.I.

46 Relief for interest. E+W+S+N.I.

For the year 1989-90 the qualifying maximum defined in section 367(5) ofthe Taxes Act 1988 (limit on relief for interest on certain loans) shall be£30,000.

47 Close company loans: business expansion scheme. E+W+S+N.I.

In section 360 of the Taxes Act 1988 (loans to buy interest in closecompany), after subsection (3) there shall be inserted—

“(3A) Interest shall not be eligible for relief under section 353 by virtue ofparagraph (a) of subsection (1) above in respect of shares acquired on orafter 14th March 1989 if at any time the person by whom they are acquired, orthat person’s husband or wife, makes a claim for relief in respect of themunder Chapter III of Part VII.”

48 Close company loans: material interest. E+W+S+N.I.

(1) In section 360 of the Taxes Act 1988 for subsection (4) there shall besubstituted—

“(4) Subject to section 360A, in this section expressions to which a meaningis assigned by Part XI have that meaning.”

(2) The following section shall be inserted after that section—

“360A Meaning of “material interest” in section 360.

(1) For the purposes of section 360(2)(a) an individual shall be treated ashaving a material interest in a company—

(a) if he, either on his own or with one or more of his associates, or if anyassociate of his with or without other such associates, is the beneficialowner of, or able (directly or through the medium of other companies or by anyother indirect means) to control, more than 5 per cent. of the ordinary sharecapital of the company, or

(b) if, on an amount equal to the whole distributable income of the companyfalling to be apportioned under Part XI for the purpose of computing totalincome, more than 5 per cent. of that amount could be apportioned to himtogether with his associates (if any), or to any associate of his, or any suchassociates taken together.

(2) Subject to the following provisions of this section, in subsection (1)above “associate”, in relation to an individual, means—

(a) any relative or partner of the individual;

(b) the trustee or trustees of a settlement in relation to which theindividual is, or any relative of his (living or dead) is or was, a settlor(“settlement” and “settlor” having the samemeaning as in section 681(4)); and

(c) where the individual is interested in any shares or obligations of thecompany which are subject to any trust, or are part of the estate of adeceased person, the trustee or trustees of the settlement concerned or, asthe case may be, the personal representative of the deceased.

(3) In relation to any loan made after 5th April 1987, there shall bedisregarded for the purposes of subsection (2)(c) above—

(a) the interest of the trustees of an approved profit sharing scheme (withinthe meaning of section 187) in any shares which are held by them in accordancewith the scheme and have not yet been appropriated to an individual; and

(b) any rights exercisable by those trustees by virtue of that interest.

(4) In relation to any loan made on or after the day on which the Finance Act1989 was passed, where the individual has an interest in shares or obligationsof the company as a beneficiary of an employee benefit trust, the trusteesshall not be regarded as associates of his by reason only of that interestunless subsection (6) below applies in relation to him.

(5) In subsection (4) above “employee benefit trust” has thesame meaning as in paragraph 7 of Schedule 8, except that in its applicationfor this purpose paragraph 7(5)(b) shall have effect as if it referred to theday on which the Finance Act 1989 was passed instead of to 14th March 1989.

(6) This subsection applies in relation to an individual if at any time on orafter the day on which the Finance Act 1989 was passed—

(a) the individual, either on his own or with any one or more of hisassociates, or

(b) any associate of his, with or without other such associates,

has been the beneficial owner of, or able (directly or through the mediumof other companies or by any other indirect means) to control, more than 5 percent. of the ordinary share capital of the company.

(7) Sub-paragraphs (9) to (12) of paragraph 7 of Schedule 8 shall apply forthe purposes of subsection (6) above in relation to an individual as theyapply for the purposes of that paragraph in relation to an employee.

(8) In relation to any loan made before 14th November 1986, where theindividual is interested in any shares or obligations of the company which aresubject to any trust, or are part of the estate of a deceased person,subsection (2)(c) above shall have effect as if for the reference to thetrustee or trustees of the settlement concerned or, as the case may be, thepersonal representative of the deceased there were substituted a reference toany person (other than the individual) interested in the settlement or estate,but subject to subsection (9) below.

(9) Subsection (8) above shall not apply so as to make an individual anassociate as being entitled or eligible to benefit under a trust—

(a) if the trust relates exclusively to an exempt approved scheme as definedin section 592; or

(b) if the trust is exclusively for the benefit of the employees, or theemployees and directors, of the company or their dependants (and not whollyor mainly for the benefit of directors or their relatives), and the individualin question is not (and could not as a result of the operation of the trustbecome), either on his own or with his relatives, the beneficial owner of morethan 5 per cent. of the ordinary share capital of the company;

and in applying paragraph (b) above any charitable trusts which may ariseon the failure or determination of other trusts shall be disregarded.

(10) In this section “relative” means husband or wife, parentor remoter forebear, child or remoter issue or brother or sister.”