Corporation Tax Act 2009 section 475C

Meaning of "hybrid capital instrument"

Section 475C defines what a "hybrid capital instrument" is for corporation tax purposes, setting out the conditions a loan relationship must meet and the election process the debtor must follow.

• A loan relationship is a hybrid capital instrument if the debtor can defer or cancel interest payments, the loan has no other significant equity features, and the debtor has made a valid election for the accounting period
• A loan has no significant equity features if there are no meaningful voting rights or dominant influence over the debtor, any changes to the debt amount are limited to write-downs or conversions only in qualifying distress or regulatory scenarios, and the creditor cannot receive anything beyond interest and debt repayment except through conversion in those same scenarios
• The election is irrevocable, must be made within 6 months of either becoming a party to the loan or the loan being amended to meet the qualifying conditions, and takes effect from the accounting period in which that date falls and for all subsequent periods
• The election has no effect if the company entered into the loan relationship as part of arrangements where a main purpose is to secure a tax advantage for anyone