Income Tax Act 2007 section 397

Eligibility requirements for interest on loans within section 396

Section 397 sets out the four conditions (A to D) that must all be met before an individual can claim tax relief on interest paid on a loan used to buy shares in an employee-controlled company under section 396.

• The company must be an unquoted, UK or EEA-resident trading company (or holding company of a trading group) throughout the period from share acquisition to the date interest is paid (Condition A).
• The company must either first become employee-controlled during the tax year of the interest payment, or be employee-controlled for at least 9 months of that tax year (Condition B).
• The individual must have been a full-time employee of the company from the date the loan was used until the interest payment date, or must have left no more than 12 months before that payment date having worked full-time up to their departure (Condition C).
• The individual must not have recovered any capital from the company between the date the loan was used and the interest payment date, other than amounts already treated as a repayment of the loan under section 406(2) (Condition D).