INTM552100 - Hybrids: hybrid transfers (Chapter 4): conditions to be satisfied: condition D

Condition D at s259DA(5) asks whether it would be reasonable to suppose that a hybrid transfer deduction/non-inclusion mismatch would arise, if Part 6A (or equivalent non-UK legislation) did not apply.

There are two types of hybrid transfer deduction/non-inclusion mismatches

• Case 1 (s259DC(2)) applies where deductions exceed ordinary income
• Case 2 (s259DC(5)) applies where ordinary income arises, but is under-taxed.

In broad terms, ordinary income means income that is brought into account when calculating taxable profits on which tax is charged. The full definition, including restrictions on what may be regarded as ordinary income and where specific reliefs may be treated as reducing the amount of ordinary income, is in s259BC and the concept is discussed further at INTM550560.

The definition was expanded by Finance (No.2) Act 2017 to include a qualifying capital amount as ordinary income 259DD(6)-(11).

Any excess is disregarded if it arises because of the financial trader exclusion (see INTM552170) or because the payee is a relevant investment fund (see INTM552210).