Income Tax Act 2007

Main tax treatment

607 Treatment of price differences under repos

(1) This section applies if—

(a) there is a repo in respect of securities, and

(b) under the repo, the original owner has transferred the securities to the interim holder.

(2) Any difference between the sale price of the securities and the repurchase price of the securities is treated for income tax purposes as follows.

(3) If the repurchase price is more than the sale price, the difference is treated as a payment of interest made by the repurchaser on a deemed loan from the interim holder of an amount equal to the sale price.

(4) If the sale price is more than the repurchase price, the difference is treated as a payment of interest made by the interim holder on a deemed loan from the repurchaser of an amount equal to the repurchase price.

(5) In either case, the payment of interest is treated for income tax purposes as—

(a) becoming due when the repurchase price becomes due, and

(b) paid when that price is paid.

(6) Subsection (7) applies in calculating the sale price for the purposes of this section if the repo involves the exercise of an option (see section 569(4)(b) and (c)).

(7) The amount of any consideration given for the option is—

(a) in a case falling within section 569(4)(b), added to what would otherwise be the price, and

(b) in a case falling within section 569(4)(c), subtracted from what would otherwise be the price.

(8) This section is subject to section 608 (exceptions) and Chapter 6 (powers to modify repo provisions: non-standard repo cases and redemption arrangements).

608 Exceptions to section 607

(1) Section 607 does not apply in a case within subsection (2) or (3).

(2) A case is within this subsection if the agreement or agreements for sale and repurchase are not what one would expect of persons dealing at arm’s length.

(3) A case is within this subsection if the interim holder has all the benefits and risks from fluctuations in the market value of the securities between their sale and repurchase.

(4) This section is subject to any regulations under—

(a) section 611 (power to modify Chapter 5 in non-arm’s length case), and

(b) sections 612 to 614 (powers to modify repo provisions: non-standard repo cases and redemption arrangements).