Finance Act, 1974

Relief to individuals on loans applied in acquiring interest in a partnership.

36.—(1) This section applies to a loan to an individual to defray money applied—

(a) in purchasing a share in a partnership, or

(b) in contributing money to a partnership by way of capital or a premium, or in advancing money to the partnership, where the money contributed or advanced is used wholly and exclusively for the purposes of the trade or profession carried on by the partnership, or

(c) in paying off another loan where relief could have been obtained under this section for interest on that other loan if it had not been paid off (on the assumption, if the loan was free of interest, that it carried interest).

(2) Relief shall be given in respect of any payment of interest by the individual on the loan—

(a) if throughout the period from the application of the proceeds of the loan until the interest was paid he has personally acted in the conduct of the trade or profession carried on by the partnership as a partner therein, and

(b) if he shows that in that period he has not recovered any capital from the partnership, apart from any amount taken into account under the next following subsection.

(3) If at any time after the application of the proceeds of the loan the individual has recovered any amount of capital from the partnership without using that amount in repayment of the loan, he shall be treated for the purposes of this section as if he had at that time repaid that amount out of the loan, and so that out of the interest otherwise eligible for relief and payable for any period after that time there shall be deducted an amount equal to interest on the amount of capital so recovered. If part only of such a loan fulfils the conditions in this section, so as to afford relief for interest on that part, the deduction to be made under this subsection shall be made wholly out of interest on that part.

(4) The individual shall be treated as having recovered an amount of capital from the partnership if—

(a) he receives a consideration of that amount or value for the sale of any part of his interest in the partnership, or

(b) the partnership returns any amount of capital to him or repays any amount advanced by him, or

(c) he receives a consideration of that amount or value for assigning any debt due to him from the partnership.

In the case of a sale or assignment otherwise than by way of a bargain made at arm's length, the sale or assignment shall be deemed to be for consideration of an amount equal to the market value of what is disposed of.

(5) Subsections (2), (3) and (4) shall apply to a loan within subsection (1) (c) as if it, and any loan it replaces, were one loan, and—

(a) references to the application of the proceeds of the loan were references to the application of the proceeds of the original loan, and

(b) any restriction under subsection (3) which applied to any loan which has been replaced applied also as respects the loan which replaces it.

(6) Subsection (1) shall not apply to a loan unless it is made in connection with the application of the money, and either on the occasion of its application, or within what is in the circumstances a reasonable time from the application of the money, and that subsection shall not apply to a loan the proceeds of which are applied for some other purpose before being applied as described in that subsection.

(7) Interest eligible for relief under this section shall be deducted from or set off against the income of the individual for the year of assessment in which the interest is paid, and tax shall be discharged or repaid accordingly, and such interest shall not be eligible for relief under any provision of the Income Tax Acts apart from this section.