Taxes Consolidation Act 1997 section 840A

Interest on loans to defray money applied for certain purposes

Section 840A restricts the deductibility of interest on loans from connected persons used to acquire assets from connected companies, subject to a number of exceptions including a relief for genuine commercial restructurings introduced by Finance Act 2025.

• Interest on a loan from a connected person to fund the acquisition of assets from a connected company is not deductible in computing profits chargeable to corporation tax under Schedule D, nor is interest on any refinancing of such a loan.
• Exceptions apply where a trade is acquired from a company outside the charge to corporation tax, where an acquired asset is leased and was not previously used in a trade within the charge to corporation tax, and where the lender's sole business is on-lending borrowed funds from unconnected persons.
• Finance Act 2025 introduced an exception allowing interest relief where the connected seller had itself been claiming interest on borrowings to acquire the same asset, the connected lender is taxable on the interest income, and the transaction is for bona fide commercial purposes.
• The relief is capped by reference to the principal outstanding on the connected seller's borrowings immediately before the sale, or where there have been earlier intra-group transfers of the same asset, by reference to the earliest such transfer.