UK tries to resolve ambiguity of treatment for TLAC tax rules

Author: Olly Jackson | Published: 5 Nov 2018

The UK is changing tax rules for hybrid capital instruments, which market participants hope will end ambiguity of treatment. This is a much-needed change as banks continue to be faced with uncertainty concerning the deadline for the new total loss-absorbing capacity (TLAC) requirements and the tax status of these instruments.

The UK government, as part of its budget released last week, is introducing new rules for taxing hybrid capital instruments to eliminate mismatches between the tax treatment of instruments used externally and those used internally. These will replace the current rules, which cover regulatory capital instruments, and will take into account the Bank of England's minimum requirements from own funds & eligible liabilities (MREL), which are required in a bail-in resolution to recapitalise the bank. 

"The question is whether the new UK legislation will adequately capture the kinds of loss-absorbing instruments that will be issued, and resolve ambiguity of...