Part 11Manufactured payments and repos

Chapter 5Price differences under repos

Main tax treatment

C1607Treatment 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.

F17A

A company within the charge to corporation tax is not to be treated as a result of this section as making any payment of interest for income tax purposes.

8

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

C1608Exceptions 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).