What is the purpose of section 459 of the Corporation Tax Act 2010?

Section 459 is an anti-avoidance provision that blocks arrangements designed to circumvent the section 455 tax charge on close company loans to participators. It deems loans routed through third parties as made directly to the participator or their associate, ensuring the full close company loan provisions apply and the tax charge cannot be avoided through indirect arrangements.

When does section 459 apply to treat a loan as made to a participator?

Section 459 applies where a person arranges for a close company to make a loan that would not normally trigger a section 455 charge, and a third party separately makes a payment, transfers property, or settles a liability for a participator or their associate. When both conditions are met, the loan is treated as made directly to the relevant person.

What are the exceptions to section 459 of the Corporation Tax Act 2010?

Section 459 does not apply in two circumstances. First, where the arrangements were made in the ordinary course of a business the person carries on, reflecting a genuine commercial purpose. Second, where the relevant person's total income already includes an amount at least equal to the loan in respect of the payment or transfer received, meaning the benefit has already been taxed.

How does section 459 extend the meaning of participator for controlled companies?

Under section 459, if one company controls another, a participator in the controlling company is also treated as a participator in the controlled company. This extended definition prevents avoidance through the use of subsidiary or controlled companies, ensuring the anti-avoidance provision cannot be sidestepped by interposing additional corporate entities in the arrangement.

Corporation Tax Act 2010 section 459

Loan treated as made to participator

Section 459 is an anti-avoidance provision that prevents arrangements designed to circumvent the section 455 tax charge on loans made by close companies to their participators.

Where a person arranges for a close company to make a loan that would not normally trigger a section 455 charge, and a third party separately makes a payment, transfers property, or settles a liability for a participator or their associate, the loan is treated as if it had been made directly to that participator or associate
When this section applies, the full range of close company loan provisions — sections 455 to 458 and sections 464ZA and 464ZB — take effect as though the loan had been made directly to the relevant person
The section does not apply if the arrangements were made by the person in the ordinary course of their business, or if the relevant person's total income already includes an amount at least equal to the loan or advance in respect of the payment, transfer, or liability settlement
Where one company controls another, a participator in the controlling company is also treated as a participator in the controlled company for the purposes of this section

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