Income Tax Act 2007 section 396

Loan to buy interest in employee-controlled company

Section 396 sets out the conditions under which tax relief is available on interest paid on a loan taken out by an individual to acquire shares in an employee-controlled company.

• Relief applies to loans used to buy ordinary shares in a company that becomes employee-controlled either after the share purchase or no more than 12 months before it, and also to loans that refinance an earlier qualifying loan.
• A company counts as employee-controlled when full-time employees beneficially own more than 50% of both its issued ordinary share capital and its voting power.
• Where any single individual holds more than 10% of the ordinary shares or voting power, only the first 10% counts towards the employee-control test — the excess is treated as owned by a non-employee.
• A full-time employee means someone who spends the greater part of their time working as an employee or director of the company or of a 51% subsidiary, and the relief is excluded where the company's business is the occupation of commercial woodlands.