Corporation Tax Act 2010 section 1018

The principal secured: special securities

Section 1018 limits what counts as the "principal secured" by a security for distribution purposes, and ensures that where a security is issued at a premium, the premium is also taken into account.

• The principal secured by a security cannot exceed the new consideration actually received by the company when the security was issued.
• Where a security is issued at a premium representing new consideration and a distribution is made in respect of it, the principal secured includes both the principal amount and the premium.
• This prevents companies from inflating the principal figure beyond what was genuinely contributed, which would otherwise reduce the amount treated as a distribution.
• The rule operates specifically for the purposes of paragraph F in the definition of "distribution" in section 1000(1), which deals with interest and other payments on certain securities that exceed a reasonable commercial return.