Section 396 — Income Tax Act 2007: Loan to buy interest in employee-controlled company

Loan to buy interest in employee-controlled company 396 1 This section applies to a loan to an individual that is used in one or more of the ways specified in subsection (2).

2 The ways are—

a acquiring part of the ordinary share capital of a company that first becomes an employee-controlled company—

i after the date of acquisition, or ii not earlier than 12 months before that date, and b repaying another loan to which this section applies.

3 For the purposes of this section and section 397, a company is employee-controlled at any time when—

a more than 50% of the issued ordinary share capital of the company is owned beneficially by persons who are full-time employees of the company, and b more than 50% of the voting power in the company is so owned.

4 If an individual owns beneficially more than 10% of the issued ordinary share capital of, or voting power in, a company, for the purposes of subsection (3) the excess is treated as being owned by an individual who is not a full-time employee of the company.

5 In this section and section 397 “ full-time employee ”, in relation to a company, means an individual the greater part of whose time is spent working as an employee or director of the company or of a 51% subsidiary of the company.

6 This section is subject to section 411 (ineligibility of interest where business is occupation of commercial woodlands).