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Budget 2021: Changes to the "hybrid" anti-avoidance rules


In November last year the government announced proposals to significantly amend the UK's anti-avoidance regime targeting hybrid and other mismatches (the November Proposals). As well as following up on the three specific problem areas which were the subject of a previous HMRC consultation, they addressed a number of other issues that were raised by taxpayers during the consultation process. Please click here for a summary of some the key proposals from November relevant to the UK funds sector.

In the Budget the government published a policy paper (which can be found here) which restated many of the measures announced in November. However, the Budget measures contained various changes from the November Proposals, reflecting subsequent consultations that HMRC had had with industry bodies such as the BVCA and the ACC (on the tax committees of which our partners sit) and other interested parties (including ourselves). The changes from the November Proposals include:

  • the proposed widening of the concept of "dual inclusion income" (discussed here) which was due to have mandatory retrospective effect back to the introduction of the hybrids regime will now have effect from Royal Assent of the Finance Bill but companies will be able to make a claim to apply the changes retrospectively; and

  • in November it was proposed that the definition of "acting together" would be amended to exclude any investor holding less than 10% of a partnership that is a collective investment scheme, subject to rules preventing partners with larger interests fragmenting them in order to fall within the new exclusion (discussed further here). However, that proposal has been replaced by a proposal to introduce new provisions to ensure that counteractions under the hybrids rules are disapplied where they arise in respect of participants in transparent funds who hold investments of less than 10% in those funds. For more detail please click here


Return to Budget 2021.

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