Income Tax Act 2007 section 410

Other business successions and reorganisations

Section 410 preserves income tax relief on loan interest when a business undergoes a succession or reorganisation, such as a partnership being incorporated into a company or co-operative, so that the individual does not lose their entitlement to interest relief simply because the original business entity has changed form.

• Where an individual has a qualifying business loan and the underlying business entity is involved in a transaction resulting in the individual acquiring shares in or making a loan to a different company or co-operative, interest relief on the original loan can continue
• Continuity of relief requires that interest on the original loan was eligible for relief up to the point of the transaction, and that the loan would have qualified under one of the business loan provisions had it been taken out at the time of the transaction and applied to the new entity
• The business loan provisions covered are section 392 (loan to buy interest in a close company), section 396 (loan to buy interest in an employee-controlled company), and section 401 (loan to invest in a co-operative)
• This section applies only to genuine business successions involving a change from one entity to another; it does not apply where an investment in the same entity simply changes form, such as converting loan stock into ordinary shares