Regulatory Capital Requirements: UK Clarifies Tax Treatment of New Tier 2 Regulatory Capital Instruments

Sullivan & Cromwell LLP - 5 November 2012

HM Revenue and Customs have proposed draft legislation to ensure that interest payable on Tier 2 regulatory capital instruments intended to comply with the new Basel III regime and the EU’s CRD IV and Solvency II regimes will be deductible for UK tax purposes. However, HMRC’s view remains that interest payable on Additional Tier 1 capital instruments under the new regime will not be deductible, at least under current law. It remains to be seen whether regulations will be introduced to improve the tax treatment of UK issuers of such instruments.