After subsection (2A) of section 731 of the Taxes Act 1988 (disapplication of bond washing rules where buyer has to make manufactured payment) there shall be inserted the following subsections—

“(2B)

Subject to subsection (2E) below, where there is a repo agreement in relation to any securities—

(a)

neither—

(i)

the purchase of the securities by the interim holder from the original owner, nor

(ii)

the repurchase of the securities by the original owner,

shall be a purchase of those securities for the purposes of subsection (2) above; and

(b)

neither—

(i)

the sale of the securities by the original owner to the interim holder, nor

(ii)

the sale by the interim holder under which the securities are bought back by the original owner,

shall be taken for the purposes of subsection (2) above to be a subsequent sale of securities previously purchased by the seller.

(2C)

Accordingly, where there is a repo agreement, the securities repurchased by the original owner shall be treated for the purposes of subsection (2) above (to the extent that that would not otherwise be the case) as if they were the same as, and were purchased by the original owner at the same time as, the securities sold by him to the interim holder.

(2D)

For the purposes of subsections (2B) and (2C) above there is a repo agreement in relation to any securities if there is an agreement in pursuance of which a person (“the original owner”) sells the securities to another (“the interim holder”) and, in pursuance of that agreement or a related agreement, the original owner—

(a)

is required to buy back the securities;

(b)

will be required to buy them back on the exercise by the interim holder of an option conferred by the agreement or related agreement; or

(c)

is entitled, in pursuance of any obligation arising on a person’s becoming entitled to receive an amount in respect of the redemption of those securities, to receive from the interim holder an amount equal to the amount of the entitlement.

(2E)

Subsections (2B) and (2C) above do not apply if—

(a)

the agreement or agreements under which the arrangements are made for the sale and repurchase of the securities are not such as would be entered into by persons dealing with each other at arm’s length; or

(b)

any of the benefits or risks arising from fluctuations, before the securities are repurchased, in the market value of the securities in question accrues to or falls on the interim holder.

(2F)

Section 730B applies for the purposes of subsections (2B) to (2E) above as it applies for the purposes of section 730A.”