HMRC has updated its technical note on the FA 2019 changes to the hybrid capital instruments rules, announcing its intention to publish draft regulations later in 2019 to ensure that certain instruments with takeover or change of control provisions are not denied a tax deduction for interest paid.
The intention behind the new rules, which came into effect from 1 January 2019, was to allow a tax deduction for interest paid on all hybrid capital instruments that are, in essence, debt instruments. These rules were changed to allow certain types of hybrid capital instruments issued by systemically important banks operating in the UK to fulfil the Bank of England’s ‘minimum requirement for own funds and eligible liabilities’ conditions.
The government is aware that certain instruments with takeover or change of control provisions may not meet the current definition of a hybrid capital instrument, because the conversion may potentially be into share capital of a parent entity that does not meet the current definition used for the debtor’s ‘quoted parent’.
The proposed regulations will amend the definition of ‘conversion event’ in the new rules to ensure that takeover or change of control provisions do not exclude instruments that only allow for conversion in a qualifying case and are, in essence, debt. HMRC has updated the technical note, first published at Budget 2018, with new section 2.4 explaining the amendment and confirming it will apply retrospectively from 1 January 2019.
HMRC has updated its technical note on the FA 2019 changes to the hybrid capital instruments rules, announcing its intention to publish draft regulations later in 2019 to ensure that certain instruments with takeover or change of control provisions are not denied a tax deduction for interest paid.
The intention behind the new rules, which came into effect from 1 January 2019, was to allow a tax deduction for interest paid on all hybrid capital instruments that are, in essence, debt instruments. These rules were changed to allow certain types of hybrid capital instruments issued by systemically important banks operating in the UK to fulfil the Bank of England’s ‘minimum requirement for own funds and eligible liabilities’ conditions.
The government is aware that certain instruments with takeover or change of control provisions may not meet the current definition of a hybrid capital instrument, because the conversion may potentially be into share capital of a parent entity that does not meet the current definition used for the debtor’s ‘quoted parent’.
The proposed regulations will amend the definition of ‘conversion event’ in the new rules to ensure that takeover or change of control provisions do not exclude instruments that only allow for conversion in a qualifying case and are, in essence, debt. HMRC has updated the technical note, first published at Budget 2018, with new section 2.4 explaining the amendment and confirming it will apply retrospectively from 1 January 2019.
