Commentary on Sections Overview Overview Section 392: Loan to buy interest in close company
1092.This section deals with conditions for relief for interest on a loan to buy an interest in a close company. It is based on section 360(1), (3A) and (4) of ICTA.
1093.The section is the first of four dealing with this relief.
1094.Subsection (2) provides that the company in which the investment is made with the borrowed money must be a close company, but must not be a close investment-holding company within section 13A(1) of ICTA. In addition, the investment must either be in the ordinary shares of the company, or in the form of a loan (or a replacement loan) which is used for specified business purposes, or both.
1095.It is clear from section 363(4) of ICTA, under which a replacement loan and the original loan are treated as one, that a replacement loan only qualifies under this section if it replaces an earlier loan for the same qualifying purpose. This point has been made explicit in this section.
1096.Subsection (3) contains a further condition that the investment must not be in ordinary shares for which relief is given under the enterprise investment scheme income tax or capital gains tax provisions. See Schedule 2 Part 9 for transitional provisions where the shares were acquired before 6 April 1989.