Section 399 | Eligibility requirements for interest on loans within section 398

(1)Interest on a loan within section 398 to an individual is eligible for relief only if conditions A and B are met.

(2)Condition A is that throughout the period from the use of the loan until the interest is paid the individual has been a member of the partnership otherwise than—

(a)as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907 (c. 24), or

(b)as a member of an investment LLP.

(3)Condition B is that in that period the individual has not recovered any capital from the partnership, apart from any amount taken into account under section 406(2) (recovered capital that is treated as a repayment of the loan).

(4)If section 400 (film partnerships) applies in a tax year, only 40% of the interest that would otherwise be eligible for relief for that year is eligible.

(5)For the purposes of subsection (2) an individual who is not a member of a partnership is treated as such a member if—

(a)the partnership carries on a profession,

(b)the individual is employed by the partnership in a senior capacity, and

(c)the individual is allowed—

(i)to act independently in dealing with clients of the partnership, and

(ii)to act generally in such a way as to be indistinguishable from the partners in relations with those clients.

(6)For the purposes of subsection (2) “investment LLP” means a limited liability partnership—

(a)whose business consists wholly or mainly of the making of investments, and

(b)the principal part of whose income is derived from investments,

and whether a limited liability partnership is an investment LLP is determined for each period of account of the partnership.