Corporation Tax Act 2009 section 409

Postponement until redemption of debits for close companies' deeply discounted securities

Section 409 requires close companies that have issued deeply discounted securities to defer their tax deductions for the accruing discount until the security is actually redeemed, where the creditor holding the security is a connected person such as a participator in the company.

• Where a close company issues a deeply discounted security and the creditor is a participator, associate, or connected controller of the issuing company, the discount debits cannot be claimed as they accrue
• Instead, all discount debits that would otherwise arise in each accounting period are postponed and only brought into account in the accounting period when the security is finally redeemed
• If the connected creditor holds the security for only part of an accounting period, only the proportionate share of that period's discount debits is postponed — the remainder is recognised normally
• The amount of discount referable to any period is whatever would have been brought into account under normal loan relationship rules had this postponement rule not applied