Income and Corporation Taxes Act 1988

[F1 730A Treatment of price differential on sale and repurchase of securities. U.K.

(1) Subject to subsection (8) below, this section applies where—

(a) a person (“the original owner”) has transferred any securities to another person (“the interim holder”) under an agreement to sell them;

[F2 (b) the original owner or a person connected with him—

(i) is required to buy them back in pursuance of an obligation imposed by, or in consequence of the exercise of an option acquired under, that agreement or any related agreement, or

(ii) acquires an option to buy them back under that agreement or any related agreement which he subsequently exercises; and]

(c) the sale price and the repurchase price are different.

(2) The difference between the sale price and the repurchase price shall be treated for the purposes of the Tax Acts—

(a) where the repurchase price is more than the sale price, 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; and

(b) where the sale price is more than the repurchase price, 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.

(3) Where any amount is deemed under subsection (2) above to be a payment of interest, that payment shall be deemed for the purposes of the Tax Acts to be one that becomes due at the time when the repurchase price becomes due and, accordingly, is treated as paid when that price is paid.

(4) Where any amount is deemed under subsection (2) above to be a payment of interest, the repurchase price shall be treated for the purposes of the Tax Acts (other than [F3 the excepted provisions specified in subsection (4A) below]) and (in cases where section 263A of the 1992 Act does not apply) for the purposes of the 1992 Act—

(a) in a case falling within paragraph (a) of that subsection, as reduced by the amount of the deemed payment; and

(b) in a case falling within paragraph (b) of that subsection, as increased by the amount of the deemed payment.

[F4 This subsection is subject to subsection (4B) below.]

[F5 (4A) The excepted provisions are—

(a) this section,

(b) section 730BB, apart from subsection (7),

(c) section 737A, and

(d) section 737C.

(4B) Where section 730BB(7) has effect (repurchase price to be treated as increased or reduced for certain purposes), subsection (4) above does not have effect for any purpose other than that of determining the amount that falls to be increased or reduced under section 730BB(7).]

(5) For the purposes of section 209(2)(d) F6 . . . any amount which is deemed under subsection (2)(a) above to be a payment of interest shall be deemed to be interest in respect of securities issued by the repurchaser and held by the interim holder.

[F7 (5A) For the purposes of the Corporation Tax Acts, a company has a relationship to which this section applies in any case where—

(a) the circumstances are as set out in subsection (1) above; and

(b) interest on a deemed loan is deemed by virtue of subsection (2) above to be paid by or to the company;

and references to a relationship to which this section applies, and to a company’s being party to such a relationship, shall be construed accordingly.]

[F8 [F9 (6) Where a company has a relationship to which this section applies—

(a) Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships) shall, as respects that company, have effect in relation to the interest deemed by virtue of subsection (2) above to be paid or received by the company under that relationship as it would have effect if it were interest under a loan relationship to which the company is a party,

(b) F10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and

(c) the only debits or credits to be brought into account for the purposes of that Chapter by virtue of this subsection in respect of a relationship are those relating to that deemed interest,

and, subject to [F11 paragraph (c)] above, references in the Corporation Tax Acts to a loan relationship accordingly include a reference to a relationship to which this section applies.]

(6A) Any question whether debits or credits brought into account in accordance with subsection (6) above in relation to any company—

(a) are to be brought into account under section 82(2) of the Finance Act 1996 (trading loan relationships), or

(b) are to be treated as non-trading debits or credits,

shall be determined (subject to Schedule 11 to that Act (insurance companies)) according to the extent (if any) to which the company is a party to the repurchase in the course of activities forming an integral part of a trade carried on by the company.]

[F12 (6B) To the extent that debits or credits fall to be brought into account by a company under [F13 section 82(2) of the Finance Act 1996] in the case of a relationship to which this section applies, the company shall be regarded for the purposes of Chapter 2 of Part 4 of [F14 that Act] as being party to the relationship for the purposes of a trade carried on by the company.]

(7) The Treasury may by regulations provide for any amount which is deemed under subsection (2) above to be received as a payment of interest to be treated, in such circumstances and to such extent as may be described in the regulations, as comprised in income that is eligible for relief from tax by virtue of section 438, 592(2), 608(2)(a), 613(4), 614(2), (3) or (4), 620(6) or 643(2).

(8) Except where regulations under section 737E otherwise provide, this section does not apply if—

(a) the agreement or agreements under which provision is made for the sale and repurchase are not such as would be entered into by persons dealing with each other at arm’s length; or

(b) all of the [F15 benefits and risks] arising from fluctuations, before the repurchase takes place, in the market value of the securities sold accrue to, or fall on, the interim holder.

[F16 (8A) In this section references to the sale price are to be construed—

(a) in a case where the securities are bought back by the transferor or a person connected with him in compliance with a requirement imposed in consequence of the exercise of an option acquired under the agreement to sell the securities or any related agreement, as references to what would otherwise be the sale price plus the amount of any consideration given for the option, and

(b) in a case where the securities are so bought back in the exercise of an option so acquired, as references to what would otherwise be the sale price less the amount of any consideration so given,

unless the consideration is brought into account under Schedule 26 to the Finance Act 2002 (derivative contracts).]

(9) In this section references to the repurchase price are to be construed—

(a) in cases where section 737A applies, and

(b) in cases where section 737A would apply if it were in force in relation to the securities in question,

as references to the repurchase price which is or, as the case may be, would be applicable by virtue of section 737C(3)(b), (9) or (11)(c).]

Textual Amendments

F1 Ss. 730A, 730B inserted (with effect in accordance with s. 80(5) of the amending Act) by Finance Act 1995 (c. 4), s. 80(1)

F2 S. 730A(1)(b) substituted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 5

F3 Words in s. 730A(4) substituted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 11(2)

F4 Words in s. 730A(4) added (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 11(3)

F5 S. 730A(4A)(4B) inserted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 11(4)

F6 Words in s. 730A(5) repealed (with effect in accordance with s. 37 of the repealing Act) by Finance Act 2004 (c. 12), Sch. 42 Pt. 2(2), Note

F7 S. 730(5A) inserted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 52(2)

F8 S. 730A(6)(6A) substituted for s. 730A(6) (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 37 (with Sch. 15)

F9 S. 730A(6) substituted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 52(3)

F10 S. 730A(6)(b) repealed (with effect in accordance with s. 52(3) of the repealing Act (as amended (retrospectively) by 2005 c. 7, Sch. 4 para. 50, Sch. 11 Pt. 2(7)) by Finance Act 2004 (c. 12), Sch. 10 para. 44(a), Sch. 42 Pt. 2(6), Note 1

F11 Words in s. 730A(6) substituted (with effect in accordance with s. 52(3) of the amending Act (as amended (retrospectively) by 2005 c. 7, Sch. 4 para. 50, Sch. 11 Pt. 2(7)) by Finance Act 2004 (c. 12), Sch. 10 para. 44(b)

F12 S. 730A(6B) inserted (with effect in accordance with s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), Sch. 25 para. 52(4)

F13 Words in s. 730A(6B) substituted (with effect in accordance with Sch. 38 para. 21(3) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 20(a)

F14 Words in s. 730A(6B) substituted (with effect in accordance with Sch. 38 para. 21(3) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 20(b)

F15 Words in s. 730A(8)(b) substituted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 16

F16 S. 730A(8A) inserted (with effect in accordance with Sch. 38 para. 21(2) of the amending Act) by Finance Act 2003 (c. 14), Sch. 38 para. 10

Modifications etc. (not altering text)

C1 S. 730A applied (with modifications) (2.1.1996) by The Sale and Repurchase of Securities (Modification of Enactments) Regulations 1995 (S.I. 1995/3220), regs. 1, 4

C2 S. 730A applied (with modifications) (2.1.1996) by The Sale and Repurchase of Securities (Modification of Enactments) Regulations 1995 (S.I. 1995/3220), regs. 1, 5

C3 S. 730A modified by Taxation of Chargeable Gains Act 1992 (c. 12), s. 263A (as inserted (with effect in accordance with s. 80(5) of the 1995 amending Act) by Finance Act 1995 (c. 4), s. 80(4))

C4 S. 730A(1) modified (1.1.1999) by The European Single Currency (Taxes) Regulations 1998 (S.I. 1998/3177), regs. 1, 14