The ‘hybrid capital instruments’ rules are relied upon since 1 January 2019 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.

These Regulations amend section 475C of the Corporation Tax Act 2009 (c. 4) to ensure that the rules relating to hybrid capital instruments, introduced in Schedule 20 to the Finance Act 2019 (c. 1), work as intended. Specifically, these amendments ensure that where a loan relationship includes a takeover or change of control provision which could result in a conversion into ordinary share capital of a company which (together with its associates) controls the debtor, that provision will not cause the loan relationship to fall outside of the rules.

These Regulations also provide for rules in relation to elections. Where the loan relationship satisfies section 475C(1)(a) and (b) only as a result of the amendments referred to above in relation to takeover or change of control provisions, the company has 6 months from the date of those amendments coming into force to make the election. In addition, where a company amends a loan relationship so that it meets the conditions of section 475C(1)(a) and (b), it now has 6 months following the start of the next accounting period to make the election. Assuming it does this, the loan relationship will be deemed to be within the scope of the rules for the next accounting period (and subsequent accounting periods).