ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers and favourable to others in principle, and is favourable to some in practice. But the numbers affected and the amounts involved are likely to be small. Change 69: Interest relief: loan to buy machinery or plant: sections 388 and 390
This change ensures that interest paid on a loan to a partner or employee to buy machinery or plant for use in a partnership or an employment is eligible for relief for so long as the machinery or plant is within the capital allowances regime.
Section 359(1) of ICTA provides relief for interest on a loan to a partner to buy machinery or plant for use in a trade or profession carried on by a partnership. Section 359(3) provides relief to an employee or office-holder to buy machinery or plant for use in an employment or office. In both cases eligibility for relief depends on the individual being “entitled to a capital allowance or liable to a balancing charge” in respect of the plant or machinery for the period of account or tax year concerned.
In any particular period while the asset continues to be used, it may be that the individual is not entitled to a capital allowance. The obvious such case is where the individual claimed a 100% first year allowance in an earlier period. In practice, loan interest relief is treated as continuing to be available in these circumstances. Sections 388(3) and 390(3) give effect to this practice by treating the individual as entitled to a capital allowance until a disposal value in respect of the asset is brought into account.