250 Extension of relief under section 248 to certain individuals in relation to loans applied in acquiring interest in certain companies

Summary

This section extends the scope of the relief, in respect of interest on borrowed money, available under section 248. That section provides for unlimited relief for an individual in respect of interest on money borrowed to acquire shares in, or lend money to, a trading company (including a “Case V income” company) or a holding company of such a trading company for use in the trade or business carried on by the company or by a connected company, provided that the individual —

• holds more than 5 per cent of the ordinary share capital of the company or of a connected company, and
• works for the great part of his/her time in the management or conduct of the business of the company or of a connected company.

By virtue of this section, these restrictions do not apply in relation to both full-time and part-time directors and employees of private companies. In the case of borrowings by full-time employees and full-time directors of a public company to acquire shares in the company, these restrictions do not apply but relief is limited to interest amounting to €3,050 for a year of assessment. The provisions of this section may be summarised as follows —

Private companies (subsection (2))

Trading companies (including “Case V income” companies)	Unlimited relief for employees and directors whether full-time or part-time
Holding companies (as described in section 248(1)(a)(ii))	Unlimited relief for full-time employees and full-time directors of the holding company or of a trading or “Case V income” company which would be regarded as connected with it for the purposes of section 248.

Public companies (subsection (3))

Trading companies (including “Case V income” companies)	Relief on interest of up to €3,050 for a year of assessment for full-time employees and full-time directors of the company.
Holding companies resident in the State	Relief on interest of up to €3,050 for a year of assessment for full-time employees and full-time directors of the holding company, or of any 90 per cent subsidiary of the holding company (subsection (5)(f)).

Details

Definitions

(1) A full-time employee or director is an employee or director who is required to devote substantially the whole or his/her time to the company.

A part-time employee or director is an employee or director who is not required to devote substantially the whole of his/her time to the company.

A “holding company” has the same meaning as in section 411, namely, a company whose business consists wholly or mainly of the holding of shares or securities of companies which are the company’s 90 per cent subsidiaries and are trading companies (that is, companies whose business consists wholly or mainly of the carrying on of a trade or trades).

Private companies

(2) The conditions necessary for obtaining the relief provided for in section 248 (that is, the 5 per cent shareholding plus the “greater part of his/her time” employment qualifications) are waived in the case of a private company subject to the conditions of this section being fulfilled. It is to be noted that because the relief is granted under section 248 (and is in addition to, and not in substitution for, any relief which may be claimed under any other provision, that is, under section 81) the provisions of that section, other than the excluded provisions, are preserved. Therefore, the provisions of section 248(1)(c), (2)(c), (3) and (4) and consequently of section 249 apply to loans applied for the purposes specified in section 248(1), in respect of which the conditions of this section are fulfilled.

The provisions of subsection (2) are effectively confined to private companies by virtue of the provisions of subsection (3) which applies to companies other than private companies.

The unlimited relief for interest provided by this subsection is confined to loans obtained to acquire shares in or to lend money to —

• a trading company or a “Case V income” company (see section 248(1)(a)(i)) by an individual who is an employee or director of the company, whether full-time or part-time, throughout the period from the purchase of the shares in, or the lending of the money to, the company until the interest is paid,
• a private company (that is, a private company within the meaning of section 33 of the Companies Act, 1963) whose business consists wholly or mainly of the holding of stocks, shares or securities in a trading company or in a “Case V income” company, by an individual who is a full-time employee or a full-time director of the company, or of a company which would be regarded as connected with such a company for the purposes of section 248 (namely, a connected company within the meaning of section 10 which is a company within section 247(2)(a), that is, a trading company, a “Case V income” company or a holding company of such a company) throughout the period from the purchase of the shares in, or the lending of the money to, the company until the interest is paid.

A further condition provides that the company whose shares are bought or to which the money is lent or any person connected with that company must not, during the period so described, have made any loans or advanced any money to the claimant, or to any person connected with the claimant, other than in the ordinary course of a business which included the lending of money carried on by the company or by a person connected with the company. For the purposes of this condition, the term “connected” is to be interpreted in accordance with subsection (5) which includes as “connected persons” additional persons to those treated as connected for the purposes of section 248.

Public companies

(3) Individuals investing in companies other than private companies qualify for limited relief for interest – up to the amount of €3,050 – on loans obtained to acquire shares in or lend money to —

• a trading company or a “Case V income” company, or
• a holding company (see subsection (1)) which is resident in the State (see subsection (5)(e))

The investment must be by a full-time employee or full-time director of the trading or holding company, or of a 90 per cent subsidiary of the holding company (see subsection (5)(f)).

Withdrawal of relief

(4) The relief given is withdrawn where there are “back-to-back” loans (that is, where the borrower obtains a loan from say, a bank, which the borrower then lends to a trading company (for example, a loan company) which then lends the money back to the original borrower for use for speculative purposes). In such circumstances it is clear that relief should not be available for interest on the original loan which, in effect, is now being used for speculative purposes. In such a case a claw-back of relief operates but only if the second loan (the “loan-back”) —

• is made to the claimant or to a person connected with the claimant, and
• that loan is subsequently regarded (under subsection (5)) as not having been made or advanced in the ordinary course of business.

Connected persons

(5)(a) & (b) In addition to the provisions for the construction of references to one person being connected with another which are contained in section 10, a person is to be regarded as connected with another person if the person has given the other person a loan, otherwise than in the ordinary course of business – where the first-mentioned person’s business includes the lending of money.

(5)(c) The rules for recognising what constitutes the “ordinary course” of the business of lending money are laid down in a negative way, that is, by prohibiting such recognition if certain factors or circumstances apply in relation to the money lent. A loan is not regarded as having been made in the ordinary course of business if —

• the loan is made on terms incompatible with an arm’s length transaction,
• the terms on which a loan made under arm’s length conditions are subsequently altered to non-arm’s length conditions,
• interest on the loan is waived,
• interest on the loan is not paid within 12 months from the due date, or
• the loan is to be repaid within 12 months from the date for repayment.

The securing of a loan

(5)(d) A person is to be regarded as having made a loan to another person where —

• that other person incurs a debt to the person, or
• a debt due from that other person to a third party is assigned to the person.

Excluded from the first rule is a debt incurred for the supply of goods or services in the ordinary course of a trade or business unless the period for which credit is given exceeds 6 months or is longer than the normal credit period allowed by the trader or businessman.

Holding companies

(5)(e) An Irish resident holding company, other than a private company, is deemed to be a trading company or a “Case V income” company within the meaning of section 248(1)(a)(i). This enables relief on interest up to the amount of €3,050 to be granted for a year of assessment under subsection (2) to full-time employees and full-time directors of public companies which are holding companies.

Employees of subsidiary companies

(5)(f) A full-time employee or a full-time director of a 90 per cent subsidiary of a (public) holding company is deemed to be a full-time employee or a full-time director of the holding company. Thus, such an employee or director can claim relief for interest up to the amount of €3,050 for a year of assessment on money borrowed to buy shares in, or lend money to, the parent company of the employing company even though he/she is not a full-time employee or full-time director of the parent company.

Relevant Date: Finance Act 2019