Income Tax Act 2007 (c. 3)

Part 11 U.K. Manufactured payments and repos

Chapter 1 U.K. Introduction

565 Overview of Part U.K.

(1) This Part is about the income tax treatment of some arrangements for the transfer of securities.

(2) Chapter 2 deals with arrangements for the transfer of securities under which provision is made for the payment of amounts representative of dividends or interest in respect of the securities.

(3) Chapter 3 prevents parties to stock lending arrangements (see section 568) and repos (see section 569) from being entitled to tax credits in some circumstances.

(4) Chapter 4 brings within the rules in Chapters 2 and 3—

(a) some stock lending arrangements under which the dividends or interest in respect of the transferred securities are paid to a person other than the lender, and

(b) some repos where the original owner is not entitled to the dividends or interest in respect of the transferred securities.

(5) Chapter 5 deals with differences between the sale and repurchase price under repos.

(6) Chapter 6 contains powers to modify some of the provisions about repos.

566 Meaning of “UK shares” and “UK securities” U.K.

(1) This section applies for the purposes of this Part.

(2) “UK shares” means shares in a UK resident company.

(3) “UK securities” means securities of—

(a) the government of the United Kingdom,

(b) a local authority in the United Kingdom,

(c) another public authority in the United Kingdom, or

(d) a UK resident company or other UK resident body.

(4) But “UK securities” does not include UK shares.

(5) In this section “securities” includes loan stock or any similar security.

567 Meaning of “overseas securities” and “overseas dividend” U.K.

(1) This section applies for the purposes of this Part.

(2) “Overseas securities” means shares, stock or other securities issued by—

(a) a government, local authority or other public authority of a territory outside the United Kingdom, or

(b) another non-UK resident body of persons.

(3) “Overseas dividend” means any interest, dividend or other annual payment payable in respect of overseas securities.

(4) In this section “securities” includes loan stock or any similar security.

568 Meaning of “stock lending arrangement” U.K.

(1) For the purposes of this Part there is a stock lending arrangement in respect of securities if—

(a) a person (“the lender”) has transferred the securities to another person (“the borrower”) otherwise than by way of sale,

(b) the securities are UK shares, UK securities or overseas securities,

(c) the transfer is under an arrangement between the lender and the borrower, and

(d) under the arrangement, the borrower is required to transfer the securities back to the lender otherwise than by way of sale.

(2) The reference in subsection (1)(d) to the transfer of the securities back to the lender includes a reference to—

(a) a transfer within subsection (3), and

(b) a payment within subsection (5).

(3) A transfer is within this subsection if it is a transfer to the lender of securities of the same description as the securities—

(a) in accordance with a requirement to do so, or

(b) in exercise of a power to substitute securities of the same description for the securities that are required to be transferred back.

(4) For the purposes of subsection (3), securities are taken to be of the same description as other securities if (and only if) they—

(a) are in the same quantities,

(b) give the same rights against the same persons, and

(c) are of the same type and nominal value,

as the other securities.

(5) A payment is within this subsection if it is a payment to the lender, in pursuance of a redemption obligation, of an amount equal to the amount of the entitlement under the redemption obligation.

(6) A redemption obligation is an obligation that arises on a person's becoming entitled to receive an amount in respect of the redemption of the securities.

569 Meaning of “repo” U.K.

(1) For the purposes of this Part there is a repo in respect of securities if conditions A, B and C are met.

(2) Condition A is that a person (“the original owner”) has agreed to sell the securities to another person (“the interim holder”).

(3) Condition B is that the securities are UK shares, UK securities or overseas securities.

(4) Condition C is that the original owner or a person connected with the original owner—

(a) is required to buy back the securities by the agreement or a related agreement,

(b) is required to buy back the securities as a result of the exercise of an option acquired under the agreement or a related agreement, or

(c) exercises an option to buy back the securities which was acquired under the agreement or a related agreement.

570 Meaning of “buying back” securities etc U.K.

(1) This section applies for the purposes of this Part, in the context of a repo.

(2) References to buying back securities include references to—

(a) buying similar securities, and

(b) in the case of a person connected with the person who is the original owner under the repo, buying the securities sold by the original owner or similar securities.

(3) Subsection (2) applies even if the person buying the securities has not held them before.

(4) References to repurchase or a repurchaser are to be read accordingly.

(5) For the purposes of subsection (2) securities are similar if they give their holders—

(a) the same rights against the same persons as to capital and distributions, interest and dividends, and

(b) the same remedies to enforce those rights.

(6) Subsection (5) applies even if there is a difference in—

(a) the total nominal amounts of the securities,

(b) the form in which they are held, or

(c) the manner in which they can be transferred.

571 Meaning of “related” agreements U.K.

Agreements are related for the purposes of this Part if they are entered into in pursuance of the same arrangement (regardless of the date on which either agreement is entered into).