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A new, non-sector specific, hybrid capital instrument (HCI) regime will apply in place of the regulatory capital securities regime from 1 January 2019. The new HCI regime represents a move away from the 'blanket fix' approach under the Taxation of Regulatory Capital Securities Regulations, SI 2013/3209 ('the RCS regulations'). It does not simply provide for payments on a HCI not to be distributions. Rather, the legislation focuses on making the minimum changes necessary. The new regime should be welcomed for showing the UK's continuing to commit to a policy of allowing tax deductible regulatory capital, but it will mean more work for tax advisers. Without a regulatory capital treatment gateway condition, advisers will need to go back to the pre-RCS regulations approach of assessing all terms and conditions of each instrument to check that each meets the definition of HCI; and advisers should be alert to the fact that simply being within the HCI regime is not enough to guarantee the issuer's tax treatment.
This article was first published in the 7 December 2018 edition of Tax Journal