Finance Act 1995

Treatment of interest earned on cash collateral

2 (1) This paragraph applies where in connection with an approved stock lending arrangement—

(a) the borrower pays to the lender an amount (“cash collateral”) by way of security for the performance of the obligation to transfer to the lender securities of the same kind and amount as those transferred by him;

(b) interest is earned by the lender on the whole of the cash collateral in respect of the period for which he holds it, and is paid to him without deduction of tax; and

(c) the lender pays to the borrower an amount (“rebate interest”) equal to the amount of interest earned by him on the cash collateral.

(2) Where this paragraph applies—

(a) the interest earned by the lender on the cash collateral shall be treated for all purposes of the Tax Acts as the income of the borrower and not as the income of the lender;

(b) the lender shall not be required to deduct from the payment of rebate interest any sum representing income tax thereon;

(c) no relief shall be given to the lender in respect of the payment under any provision of the Tax Acts; and

(d) the rebate interest shall not be regarded as the income of the borrower.

(3) This paragraph does not apply unless the amount of the rebate interest is identified as such by the parties separately from any fee or other amount payable in connection with the arrangement.