Tax deduction for regulatory capital

HMRC has issued long-awaited draft regulations aimed at providing a new tax regime for regulatory capital issued in line with the Capital Requirements Regulation (CRR) element of the Capital Requirements Directive IV (CRD IV) package of regulatory reform. The regulations are to be enacted under Finance Act 2012.

The draft regulations provide for a generous new tax regime for Additional Tier 1 instruments and Tier 2 instruments issued by qualifying issuers in compliance with CRR. An instrument benefiting from the new regime is referred to as a ‘regulatory capital security’. Specific provisions in the Finance Act 2013 dealing with Tier 2 instruments will be repealed.

They will be credit institutions, investment firms (both as defined in the CRR) or the parent undertakings of either. This follows because CRR, which requires Additional Tier 1 instruments and Tier 2 instruments to comply with certain conditions, applies only to credit institutions and investment firms…

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