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Finance Act 2018

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Hybrid transfer deduction/non-inclusion mismatches: qualifying capital amounts

10In section 259DD (hybrid transfer deduction/non-inclusion mismatches: interpretation of section 259DC), at the end insert—

(6)A qualifying capital amount arising to a payee is treated as an amount of ordinary income of a payee and references to tax include any qualifying capital tax.

(7)For the purposes of case 2—

(a)a qualifying capital amount arising to a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the amount, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee’s full marginal rate for that period,

(b)in determining the payee’s “full marginal rate”, the reference to the taxable profits mentioned in subsection (4) includes any qualifying capital amount, and

(c)in determining a “credit for underlying tax”, the reference to profits includes any qualifying capital amount.

(8)If the rate at which a qualifying capital tax is charged on a qualifying capital amount of a payee exceeds the rate at which tax would be charged on an amount of income of the payee, the excess is to be ignored.

(9)For the purposes of subsections (6) to (8) a “qualifying capital amount” means an amount of a capital nature on which a qualifying capital tax is charged.

(10)A qualifying capital tax is not regarded for this purpose as charged on an amount so far as—

(a)the amount is excluded, reduced or offset for the purposes of the tax by any exemption, exclusion, relief or credit that—

(i)applies specifically to all or part of the amount (as opposed to amounts of a capital nature generally), or

(ii)arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount, or

(b)the tax is, or falls to be, refunded (and section 259BC(6) and (7) apply for the purposes of this paragraph with the necessary modifications).

(11)For the purposes of subsections (6) to (10) a “qualifying capital tax” means—

(a)capital gains tax or the charge to corporation tax in respect of chargeable gains, or

(b)any tax chargeable under the law of a territory outside the United Kingdom that corresponds to a United Kingdom tax mentioned in paragraph (a),

but does not include any tax chargeable at a nil rate.

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