Corporation Tax Act 2009 section 521E

Unallowable purpose

Section 521E defines when a company holds a share for an "unallowable purpose" and explains how companies can elect to override this restriction, as well as what constitutes a "relevant tax advantage."

• A share is held for an unallowable purpose if the main reason (or one of the main reasons) for holding it is to obtain a relevant tax advantage
• The company may make an irrevocable election for the loan relationship rules to apply to the share despite the unallowable purpose restriction
• The election must be made no later than when the company first holds the share or, if later, when the share begins to produce a return
• A "relevant tax advantage" means receiving the share's return in a way that is taxed more favourably than if it were simply charged to corporation tax as income at the time loan relationship rules would apply