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INTM550600 | Hybrids: definition of key terms: financial instruments and relevant investment funds

From HM Revenue & Customs · International Manual

Financial instruments

Mismatches arising from payments or quasi-payments made under, or in connection with, financial instruments may be subject to counteraction under Chapter 3 of Part 6A TIOPA 2010.

Financial instruments for the purpose of Part 6A are defined in s259N as

  • arrangements where profits and deficits would fall within the loan relationship regime

  • contracts where profits and losses would fall within the derivative contracts rules

  • specific types of finance arrangements within Part 16 of CTA 2010

  • issued shares

  • arrangements providing economic benefits that correspond to those of an issued share

  • a financial instrument as defined for UK generally accepted accounting practice (GAAP)

The definition excludes anything that is a regulatory capital security as defined by

  • 1 January 2017 to 31 December 2018: Taxation of Regulatory Capital Securities Regulations 2013(SI 2013/3209), see INTM551060

  • 1 January 2019 to 31 December 2019: Hybrid and other Mismatches (Financial Instrument: Exclusions) Regulations 2019 (SI 2019/1251)

  • 1 January 2020 new regulations

An agreement for the transfer of a financial instrument is not expected to meet the definition of a financial instrument but may be a hybrid transfer falling within Chapter 4, see INTM552000 onwards.

Relevant investment fund

The amount of any mismatch or undertaxed amount attributable to a relevant investment fund is disregarded when determining the amount of any mismatch arising from financial instruments or hybrid transfers.

A relevant investment fund is defined by s259NA as any of the following funds that meet the genuine diversity of ownership condition (whether or not a clearance has been given to that effect)

  • an open-ended investment company within the meaning of s613 of CTA 2010

  • an authorised unit trust within the meaning of s616 of that Act, or

  • an offshore fund within the meaning of s354 of TIOPA 2010

The genuine diversity of ownership condition is met where

  • an offshore fund meets the conditions at regulation 75 of the Offshore Funds (Tax) Regulations 2006 (SI 2006/3001), and

  • an open-ended investment company or an authorised unit trust meets the conditions at regulation 9A of the Authorised Investment Funds (Tax) Regulations 2006 (SI 2006/964)