Loan effect

If an unquoted trading company makes an interest-free loan to a participator/director would this be regarded as an excepted asset for inheritance tax business property relief purposes?

It seems to me that this transaction represents neither a trade of money lending (see Phillips and others (Phillips’ executors) (SpC 555)) nor amounts to an investment due to the lack of interest charged. IHTA 1984 s 103(3) states that references to “business” for business property relief purposes excludes one carried on otherwise for gain.

If it is not being used for trade purposes and there is no investment business the loan would appear to be a “nothing”. It could be argued that the loan is required for future use in the trade if there is a clear intention that it will be repaid to provide funds for an earmarked project.

Alternatively could trade use be justified on the...