ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice. Change 70: Interest relief: loan to invest in partnership: meaning of “member of partnership”: sections 399 and 409
This change gives statutory effect to Statement of Practice A33.
Section 362 of ICTA provides that an individual who is a member of a partnership may obtain relief for interest paid on money borrowed to invest in the partnership. In the predecessor to section 362 (section 21 of FA 1969) there was no requirement to be a partner, but only personally to act in the trade etc carried on by the partnership. The new wording, introduced by section 25 of FA 1981, was intended to relax the work condition, for example by including sleeping partners, but also raised doubts as to whether certain individuals who are not true equity partners no longer qualified.
Statement of Practice A33 addresses the eligibility of individuals who are commonly termed salaried partners. It provides:
“The Board are advised that [sections 362 and 363 of ICTA] extend to salaried partners in a professional firm who are allowed independence of action in handling the affairs of clients and generally so to act that they will be indistinguishable from general partners in their relationships with clients.”
Section 399(5) gives effect to this Statement of Practice. That section is also applied by subsection (3) of section 409, which gives effect to ESC A43.