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Hybrid capital instruments: draft regulations

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HMRC is consulting until 9 August 2019 on draft regulations to amend the new hybrid capital instruments rules introduced by Finance Act 2019, to ensure that takeover or change of control terms will not exclude instruments that would otherwise meet the conditions to qualify as debt. HMRC announced its intention to make this amendment in a November 2018 update to its technical note published at Budget 2018.

Hybrid capital instruments are a form of debt with some features of equity. This can lead to uncertainty as to whether the payments under the hybrid instrument should be taxed as interest (which is typically deductible) or as distributions (which are not). The new rules in Finance Act 2019 Sch 20 aimed to remove this uncertainty by ensuring that, subject to certain conditions, interest payments on all debt-like instruments are deductible.

The draft Taxation of Hybrid Capital Instruments (Amendment of Section 475C of the Corporation Tax Act 2009) Regulations 2019 amend the definition of ‘conversion event’ to permit conversion of instruments into ordinary share capital of the debtor, or of a company which obtains control of the debtor, following a takeover or change of control.

The amendment will have effect from 1 January 2019 in relation to payments of interest, and from 12 February 2019 for the stamp duty and SDRT exemption for transfers of these instruments.

Issue: 1451
Categories: News