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Amendments to the hybrid capital instruments rules

Amendments to the hybrid capital instruments rules

New regulations amend hybrid capital instruments rules, for corporation tax relief on coupon payments on regulatory capital securities, used by banks and insurers.

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Director, Financial Services Tax

KPMG in the UK

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Since 1 January 2019, the ‘hybrid capital instruments’ rules are relied upon by many banks and insurers to give corporation tax relief for the coupon payments on regulatory capital securities. These rules have recently been amended by the Taxation of Hybrid Capital Instruments (Amendment of Section 475C of the Corporation Tax Act 2009) Regulations 2019, SI 2019/1250.

The regulations make the following amendments to the hybrid capital instruments rules:

  • They alter the definition of conversion event to ensure the new rules operate as intended for instruments whose terms include a common form of takeover or change of control provision (we previously discussed this amendment in detail in this Tax Matters Digest article); and
  • They allow extended deadlines for elections for an instrument to be treated as a hybrid capital instrument where either:
    • The instrument is only able to qualify as a hybrid capital instrument as a result of the new definition of conversion event referred to above; or
    • The terms of the instrument are themselves amended so that it will be able to qualify as a hybrid capital instrument.

HMRC have also updated the corporate finance manual (CFM) with new guidance on the hybrid capital instruments rules introduced by Finance Act 2019.

 

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