Income Tax Act 2007

399 Eligibility 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.