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Borrowing to buy shares in own close company - introduction

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It is often the case that an individual will have to borrow to fund the growth of their business. If the business is run as a limited company, the individual could use the borrowed money to buy shares in the company as a tax efficient way of injecting the borrowed money into the business. Income Tax Act 2007 provides for relief to be given to an individual who pays interest on certain loans, including a loan:

  • to buy an interest in a close company that is not a close investment-holding company; or
  • to repay an earlier loan used for this purpose.

Relief can't be claimed if the loan is used to buy shares in respect of which an Enterprise Investment Scheme (EIS) claim is made at any time. This means that no relief can be claimed for interest on a replacement loan if the original loan was used to buy shares in respect of which an EIS claim is made at any time.

Various conditions have to be met for the relief to be given but even if they are met, no relief can be claimed if the company's business consists solely of the occupation of commercial woodlands.


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