SAIM10260 - Relief for interest
paid: interest in a close company: ‘capital recovery
condition’: example
Recovery of capital: example
On 1 July 2006, Jane buys 10% of the ordinary share capital of
Widgets Ltd, a close trading company, for £10,000. She meets
the cost using a loan of £15,000 obtained a few days earlier,
bearing interest at 10% per annum, payable half-yearly. She pays
interest on the loan as follows:
| 31 December 2006 | £750 |
| 30 June 2007 | £750 |
| 31 December 2007 | £750 |
She was engaged for the greater part of her time in the
management of Widgets Ltd in the period from 1 July 2006 to 31
December 2007.
If, on 1 July 2007, she sold one half of her shares for
£6,000, relief could be claimed as follows:
| 2006-07 | £750 x |
£10,000 | = £500 |
| | £15,000 | |
2007-08
| Interest paid 30 June
2007 | £750 x |
£10,000 | = £500 |
| | £15,000 | |
| Interest paid 31 December
2007 | £750 x |
£10,000 | = £500 |
| | £15,000 | |
| Less £6,000 x 10% x
½ | =£(300) | |
|
=£200* | |
| Relief due for
2007-08 | £700 | |
* This is £4,000 (£10,000 - £6,000) at 10% x
½.
If there are no further transactions and Jane continues to
be a shareholder who is engaged for the greater part of her time in
the management of the company, relief may be claimed for 2008-09 on
£400 (£4,000 at 10%).
