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Gifting shares: The interest relief trap

By Mark McLaughlin, May 2021

Mark McLaughlin looks at a potential tax pitfall for company shareholders gifting their shares. 

Many individual shareholders of owner-managed businesses have bought their shares in the company using a bank loan. Alternatively, they may have used the borrowings to inject funds into the company’s trade; or to refinance a loan for either purpose. 

Jumping the hurdles 

Tax relief can generally be claimed for interest paid at a commercial rate on loans to invest in a ‘close’ (i.e. essentially a closely-controlled) company, where certain conditions are satisfied. These include:  

  • the company is a ‘close company’; 
  • the company is not a ‘close investment-holding company’ (i.e. broadly, it exists wholly or mainly for the purpose of a trade or certain other

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