As previously trialled in the 2018 Budget, the Taxation of Regulatory Capital Securities Regulations (“the Regulatory Capital Regulations”) have been revoked and replaced with new tax rules introduced by Finance Act 2019 with effect from 1 January 2019 (the “Hybrid Capital Instrument Rules”).
The old Regulations allowed banking and insurance groups to obtain certainty as to the deductibility of coupon payments on regulatory instruments. These Regulations also contain a stamp duty exemption, and also dealt with a number of other issues discussed further below.
The new Hybrid Capital Instrument rules also cater for potential coupon deductibility and stamp duty exemption, but have a narrower ambit. Further, the new rules are not confined in application to any particular sector; they apply to any hybrid capital rather than just regulatory capital. One of the consequences of this is that there is no longer an easy gateway test (of whether an instrument is CRR or CRR capital) to apply in establishing that the provisions apply to a particular instrument. Instead, it will now be necessary to work though the particular terms of each instrument.
In this article, we explore the conditions that banking and insurance groups will need to work through in respect of each instrument. We also draw out some of the key differences between the new and old rules.
Please refer to the link below for the full article.