What is a linked loan under section 257LD of the Income Tax Act 2007?

A linked loan under section 257LD is one that would not have been made, or would not have been made on the same terms, but for the investor making or proposing to make the social investment. This includes formal loans, the giving of credit, and the assignment of debts owed by the investor or an associate.

How does section 257LD affect social investment tax relief?

Section 257LD denies social investment tax relief if, at any time during the longer applicable period, the investor or an associate receives a loan linked to the investment. It is an anti-avoidance measure ensuring investors do not effectively recover their money through connected loan arrangements.

Does the linked loan rule under section 257LD extend beyond formal loans?

Yes, section 257LD casts a wide net. Beyond formal loans, it covers situations where credit is given to the investor or their associate and where a debt owed by the investor or associate is assigned to another person. This prevents arrangements structured to avoid appearing as straightforward loans.

How does section 257LD relate to the Enterprise Investment Scheme?

Section 257LD mirrors the equivalent Enterprise Investment Scheme rule at section 164 of the Income Tax Act 2007. HMRC's guidance in Statement of Practice SP6/98, published for the EIS provision, is expected to apply equally to the social investment tax relief linked loan requirement.

Income Tax Act 2007 section 257LD

The no linked loans requirement

Section 257LD prevents social investment tax relief where a loan has been made to the investor (or an associate) that is connected to the investment, during the longer applicable period.

No loan linked to the investment may be made to the investor or an associate at any time during the longer applicable period.
A "linked loan" is one that would not have been made, or would not have been made on the same terms, but for the investor making or proposing to make the investment.
The definition of a linked loan extends to the giving of credit and the assignment of debts owed by the investor or an associate.
The provision mirrors the equivalent Enterprise Investment Scheme rule at section 164 ITA 2007, and HMRC's interpretation in Statement of Practice SP6/98 is expected to apply equally here.

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