Income Tax Act 2007

Loans for investing in partnerships U.K.

398 Loan to invest in partnership U.K.

(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).

399 Eligibility requirements for interest on loans within section 398 U.K.

(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.

[F1 399A Property partnerships: restriction of relief for investment loan interest U.K.

(1) This section applies to interest on a loan within section 398 if—

(a) the partnership concerned carries on a property business, and

(b) that property business or part of it is carried on for the purpose of generating income from—

(i) land consisting of a dwelling-house or part of a dwelling-house, or

(ii) an estate, interest or right in or over land within sub-paragraph (i).

(2) Subsections (3) to (6) have effect to restrict relief under section 383(1) for so much of the interest as is referable (on a just and reasonable apportionment) to the property business or (as the case may be) the part of it within subsection (1)(b).

(3) For the tax year 2017-18, the amount of that relief is 75% of what would be given apart from this section.

(4) For the tax year 2018-19, the amount of that relief is 50% of what would be given apart from this section.

(5) For the tax year 2019-20, the amount of that relief is 25% of what would be given apart from this section.

(6) For the tax year 2020-21 and subsequent tax years, that interest is not eligible for relief under this Chapter.

(7) Section 399(4) is to be applied in relation to the tax year to which subsection (3), (4) or (5) applies before that subsection is applied in relation to that tax year.

(8) Anything that in the course of a property business is done for creating (by construction or adaptation) a dwelling-house, or part of a dwelling-house, from which income is to be generated is, for the purposes of subsection (1)(b), to be treated as done for the purpose mentioned in subsection (1)(b).

(9) A property business, or part of a property business, that consists of the commercial letting of furnished holiday accommodation (as defined by Chapter 6 of Part 3 of ITTOIA 2005) is not within subsection (1)(b).

(10) A reference in this section to a “dwelling-house” includes any land occupied or enjoyed with it as its garden or grounds.

(11) In this section “property business” means a UK property business or an overseas property business.

Textual Amendments

F1 Ss. 399A, 399B inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 24(7)

Modifications etc. (not altering text)

C1 S. 399A excluded by S.I. 2002/2006, reg. 11(2A) (as inserted (with effect in relation to awards of tax credit for the tax year 2017-18 and subsequent years of the amending S.I.) by The Tax Credits (Definition and Calculation of Income) (Amendment) Regulations 2017 (S.I. 2017/396), regs. 1, 5)

399B Property partnerships: tax reduction for non-deductible loan interest U.K.

(1) Subsections (2) and (3) apply if for a tax year an individual would be given relief for an amount (“the relievable amount”) by section 383(1) but for section 399A.

(2) The individual is entitled to relief under this section for the tax year in respect of the relievable amount.

(3) The amount of the relief is given by—

where BR is the basic rate of income tax for the year.]

Textual Amendments

F1 Ss. 399A, 399B inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 24(7)

400 Film partnerships U.K.

(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.

(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).