CFM96050 | Interest restriction: group-interest: QNGIE: equity notes

TIOPA10/S414(3)(c), S415(7)-(8)

In determining the amount of interest and other financing costs that qualify to be included in qualifying net group-interest expense certain amounts are excluded. In particular, amounts are excluded where they relate to a relevant equity note as defined under S415(7).

A security is a relevant equity note where the tests under CTA10/S1016 are met, although for CIR purposes, the permitted period is extended from 50 to 100 years. (for periods of account beginning on or after 1 April 2023. For previous periods, the permitted period was 50 years).

Therefore, the security must be:

• perpetual, such that there is no particular date by which it can be required to be redeemed, and

• long-dated, such that the latest date on which it can be required to be redeemed is after 100 years from with the date of issue of the security.

Loans that are repayable on notice by the lender (known as demand loans) are not regarded as equity note securities. This is because they contain terms capable of giving rise to a particular date by which they are to be repaid.

This exclusion does not apply to regulatory capital securities issued by banks and insurers under the Regulatory Capital Securities Regulations 2013 (S.I. 2013/3209).