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Finance Act 2014

Section 13: Relief for Loan Interest: Loan to Buy Interest in Close Company


1.This section extends the income tax relief for interest paid on loans to buy an interest in a close company to interest paid by individuals investing in companies which are resident in the European Economic Area (EEA) and would be ‘close’ if they were resident in the United Kingdom.

2.The section also adds a new section containing the definition of a ‘close investment-holding company’.

Details of the Section

3.Subsection 1 introduces changes to Chapter 1 of Part 8 of the Income Tax Act 2007 (ITA 2007).

4.Subsection 2(a) provides that a ‘close company’ for the purposes of sections 392 and 393 ITA 2007 includes a company which is resident in an EEA state other than the United Kingdom.

5.Subsection 2(b) changes the reference to the legislation containing the definition of ‘close investment-holding company’ from section 34 of the Corporation Tax Act 2010 (CTA 2010) to section 393A ITA 2007.

6.Subsection 3 adds new section 393A to ITA 2007. This contains the definition of ‘close investment-holding company’ that is currently at section 34 CTA 2010.

Background Note

7.A company is defined as ‘close’ in Corporation Act 2010 (CTA 2010) if it is controlled by five or fewer participators or any number of directors who are participators, or if more than half the company’s assets would be distributed to five or fewer participators or to any number of directors in a winding up. Section 442 CTA 2010 provides that a company is not treated as a close company if it is not UK resident.

8.The change to the definition of a close company for the purposes of this relief has been made to ensure that the legislation is compatible with EU law.

9.The addition of the definition of ‘close investment-holding company’ is made because section 34 CTA 2010 is to be repealed as a result of the adoption of a single rate of corporation tax for companies (other than those with oil and gas ring fence profits) from Financial Year 2015.

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