Part 11

Manufactured payments and repos
Chapter 5

Price differences under repos

Main tax treatment

Treatment of price differences under repos
607
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).