Finance (No. 3) Bill (HC Bill 282)

(3) For the purposes of subsection (2)(a)—

(a) the loan relationship makes provision for “insignificant
voting rights in the debtor” if (and only if) the voting rights
of any creditor under the loan relationship are limited to one
5vote exercisable in relation to matters generally affecting the
debtor without conferring any special advantage or other
right on the creditor, and

(b) “the right to exercise a dominant influence over the debtor”
means the right to give directions with respect to the debtor’s
10operating and financial policies with which it is obliged to
comply (whether or not they are for the debtor’s benefit).

(4) For the purposes of subsection (2)(b) a “write-down event” means—

(a) a permanent release of some or all of the debt, or

(b) a reduction in the amount of the debt (including to nil) in a
15case where provision is made for the reduction to be
temporary (whether on the meeting of conditions or the
exercise of a right or otherwise).

(5) For the purposes of subsection (2) a “conversion event” means—

(a) the conversion of the loan relationship into shares forming
20part of the debtor’s ordinary share capital, or

(b) the conversion of the loan relationship into shares forming
part of the ordinary share capital of the debtor’s quoted
parent company.

In paragraph (b) “quoted parent company” has the meaning given by
25section 164(3) to (7) of CTA 2010.

(6) For the purposes of subsection (2), a loan relationship makes
provision for a qualifying case if—

(a) the provision applies only in the event that there is a material
risk of the debtor becoming unable to pay its debts as they fall
30due,

(b) the provision applies only in the event that the value of the
debtor’s assets is less than the amount of its liabilities, taking
into account contingent and prospective liabilities, or

(c) the provision is included in the loan relationship solely
35because of a need to comply with a regulatory or other legal
requirement,

and, in each case, the provision in question does not include a right
exercisable by the creditor.

(7) Provision is not to be regarded as failing to meet the condition in
40subsection (2)(b) merely because, in the case of a write-down event
mentioned in subsection (4)(b), it provides for a subsequent increase
in the amount of the debt (but not above the original amount).

(8) An election under this section—

(a) is irrevocable,

(b) 45must be made before the end of the period of 6 months
beginning with the day on which the company becomes a
party to the loan relationship, and

(c) has effect for the accounting period in which the company
becomes a party to the loan relationship and subsequent
accounting periods.

(9) But an election under this section has no effect if—

(a) 5the company is a party to the loan relationship directly or
indirectly in consequence of, or otherwise in connection with,
any arrangements (within the meaning of section 455C(2)),
and

(b) the main purpose of, or one of the main purposes of, the
10arrangements is to secure a tax advantage for the company or
any other person.”

(2) In a case where a company became a party to a loan relationship before 1
January 2019, section 475C(8)(b) of CTA 2009 has effect as if the election were
required to be made on or before 30 September 2019.

4 15In section 1015 of CTA 2010 (meaning of “special securities”) after subsection
(1) insert—

“(1A) But hybrid capital instruments (within the meaning of section 475C
of CTA 2009) are not special securities by reason of meeting
condition E.”

20Loan relationships: credits and debits to be brought into account

5 After section 320A of CTA 2009 insert—

“320B Hybrid capital instruments: amounts recognised in equity

(1) This section applies if in accordance with generally accepted
accounting practice, an amount in respect of a hybrid capital
25instrument relating to any of the matters in section 306A(1) of CTA
2009—

(a) is recognised in equity or shareholders’ funds for a period,
and

(b) is not recognised in the company’s accounts for the period as
30an item of profit or loss or as an item of other comprehensive
income.

(2) The amount is to be brought into account for the period for the
purposes of this Part in the same way as an amount which is brought
into account as a credit or debit in determining the company’s profit
35or loss for the period in accordance with generally accepted
accounting practice.

(3) But this section does not bring into account for the purposes of this
Part any exchange gain or loss of the company which is recognised
in the company’s statement of total recognised gains and losses,
40statement of recognised income and expense, statement of changes
in equity or statement of income and retained earnings.”

Normal commercial loans

6 In section 162 of CTA 2010 (meaning of “normal commercial loan”) after

subsection (1) insert—

“(1B) For those purposes, “normal commercial loan” also includes a hybrid
capital instrument (within the meaning of section 475C of CTA
2009).”

5Consequential amendments

7 (1) Part 5 of CTA 2009 (loan relationships) is amended as follows.

(2) In section 398 (overview of Chapter 12), in subsection (2)—

(a) omit the “and” at the end of paragraph (d), and

(b) after paragraph (e) insert “, and

(f) 10section 420A (hybrid capital instruments).”

(3) In section 465(3) (provisions preventing amounts from being distributions),
before paragraph (za) insert—

“(zza) section 420A(2) (hybrid capital instruments),”.

8 (1) Part 10 of TIOPA 2010 (corporate interest restriction) is amended as follows.

(2) 15In section 413(6) (adjusted net group-interest expense: “relevant enactment”)
for paragraph (b) substitute—

“(b) section 320B of CTA 2009 (hybrid capital instruments:
amounts recognised in equity).”

(3) In section 415 (qualifying net group-interest expense: interpretation), omit
20subsection (8).

9 (1) The Loan Relationships and Derivative Contracts (Disregard and Bringing
into Account of Profits and Losses) Regulations 2004 (S.I. 2004/3256S.I. 2004/3256) are
amended in accordance with this paragraph.

(2) In regulation 2(1) (interpretation)—

(a) 25after the definition of “fair value profit or loss” insert—

• ““hybrid capital instrument” has the meaning given by section
  475C of CTA 2009;”, and

(b) omit the definition of “regulatory capital security”.

(3) In regulation 3 (exchange gains or losses arising from liabilities or assets
30hedging shares etc), in paragraph (5)(c), for “a regulatory capital security”
substitute “a hybrid capital instrument”.

(4) In regulation 4 (exchange gains or losses arising from derivative contracts
hedging shares etc), in paragraph (4A)(c), for “a regulatory capital security”
substitute “a hybrid capital instrument”.

35Commencement for purposes of corporation tax

10 The following have effect for accounting periods beginning on or after 1
January 2019—

(a) the provision made by paragraphs 1 to 4 and 6 so far as relating to
corporation tax, and

(b) 40the amendments made by paragraphs 5 and 7 to 9.

11 An accounting period beginning before and ending on or after 1 January
2019 is to be treated for the purposes of the provision made by this Schedule

(other than paragraph 12 or 13) as if so much of the period as falls before that
date, and so much of the period as falls on or after that date, were separate
accounting periods.

12 (1) This paragraph applies in the case of a security which was a regulatory
5capital security for the purposes of the Taxation of Regulatory Capital
Securities Regulations 2013 immediately before 1 January 2019 (referred to
in this Part of this Schedule as a “transitional qualifying instrument”).

(2) The revocations made by paragraph 1 do not affect any case where
regulation 3(2)(a) or (b), (3) or (3A) of those Regulations would have applied
10in relation to accounting periods ending on or before 31 December 2023 but
for the provision made by paragraph 1.

(3) In a case where sub-paragraph (2) has applied, paragraph 13 makes
provision for corporation tax purposes in relation to an accounting period
beginning on 1 January 2024 (“the 2024 period”) to bring in credits or debits
15in respect of a transitional qualifying instrument which exists immediately
before that date so far as they would not otherwise be brought into account.

(4) For the purposes of this paragraph and paragraph 13, an accounting period
beginning before and ending on or after 1 January 2024 is to be treated as if
so much of the period as falls before that date, and so much of the period as
20falls on or after that date, were separate accounting periods.

13 (1) If there is a difference between—

(a) the tax-adjusted carrying value of a transitional qualifying
instrument which is an asset or liability at the end of an accounting
period ending on 31 December 2023, and

(b) 25the tax-adjusted carrying value of that instrument at the beginning of
the 2024 period,

a credit or debit (as the case may be) of an amount equal to the difference
must be brought into account for the purposes of Part 5 of CTA 2009 for the
2024 period in the same way as a credit or debit which is brought into
30account in determining the company’s profit or loss for that period in
accordance with generally accepted accounting practice.

(2) For the purposes of this paragraph “tax-adjusted carrying value” is to be
construed in accordance with—

(a) section 465B of CTA 2009 (tax-adjusted carrying value in relation to
35the asset or liability representing a loan relationship), and

(b) section 702 of CTA 2009 (tax-adjusted carrying value in relation to a
contract).

(3) Where in the 2024 period, in accordance with generally accepted accounting
practice, the rights and liabilities under the transitional qualifying
40instrument have been treated as divided between—

(a) a loan relationship, and

(b) one or more derivative financial instruments or equity instruments,

the reference in this paragraph to the tax-adjusted carrying value of the
transitional qualifying instrument means the sum of the tax-adjusted
45carrying values for each of those component instruments.

(4) In sub-paragraph (3) “equity instrument” has the meaning it has for
accounting purposes.

14 (1) This paragraph applies to a transitional qualifying instrument which
qualified as a regulatory capital security as a result of falling within
regulation 2(1)(c) or (d) of the Taxation of Regulatory Capital Securities
Regulations 2013.

(2) 5The revocations made by paragraph 1 do not affect the application of
regulation 3(2)(c)(i) of those Regulations in a case where the writing down
or conversion concerned took place before 1 July 2019.

15 (1) This paragraph applies if—

(a) regulation 3(2)(c)(i) of the Taxation of Regulatory Capital Securities
10Regulations 2013 applied in relation to a transitional qualifying
instrument as a result of the writing down of the principal amount of
the security on a temporary basis, and

(b) a credit was, accordingly, not brought into account under Part 5 of
CTA 2009.

(2) 15No debit is to be brought into account under that Part in respect of the
writing up of the principal amount of the security in accordance with any
regulatory requirements or the provisions governing the security.

Commencement for purposes of income tax and CGT

16 (1) The provision made by paragraphs 1 to 4 has effect for the purposes of
20income tax in relation to payments made on or after 1 January 2019.

(2) But the revocations made by paragraph 1—

(a) do not affect the application of regulation 6 or 9 of the Taxation of
Regulatory Capital Securities Regulations 2013 in relation to
payments made before the day on which this Act is passed, and

(b) 25do not, in the case of a transitional qualifying instrument, apply to
payments made before 1 January 2024 in any case where regulation
6 or 9 of those Regulations would have applied but for the provision
made by paragraph 1.

17 The revocations made by paragraph 1 have effect for the purposes of capital
30gains tax in relation to disposals made on or after 1 January 2019.

18 In so far as it relates to the definition of “corporate bond” in section 117(1) of
TCGA 1992, the amendment made by paragraph 6 has effect in relation to
disposals made on or after 1 January 2019.

Power to amend definition of “hybrid capital instrument”

19 (1) 35The Treasury may by regulations amend section 475C of CTA 2009.

(2) The power conferred by this paragraph may not be exercised after 31
December 2019.

(3) The regulations may contain incidental, supplementary, consequential and
transitional provision and savings.

(4) 40The consequential provision that may be made by the regulations includes
provision amending any provision made by or under any Act.

(5) The regulations may contain retrospective provision.

Part 3 Stamp duty and stamp duty reserve tax

20 A transfer of a hybrid capital instrument (within the meaning of section
475C of CTA 2009) is exempt from all stamp duties.

21 5The revocations made by paragraph 1, and the provision made by
paragraph 20, have effect—

(a) for the purposes of stamp duty, in relation to instruments executed
on or after the day on which this Act is passed, and

(b) for the purposes of stamp duty reserve tax—

(i) 10in the case of agreements to transfer securities which are not
conditional, in relation to agreements made on or after that
day, and

(ii) in the case of agreements to transfer securities which are
conditional, in relation to agreements where the condition is
15satisfied on or after that day.