Part 11Manufactured payments and repos
Chapter 5Price differences under repos
Main tax treatment
C1607Treatment of price differences under repos
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.
F17A
A company within the charge to corporation tax is not to be treated as a result of this section as making any payment of interest for income tax purposes.
8
This section is subject to section 608 (exceptions) and Chapter 6 (powers to modify repo provisions: non-standard repo cases and redemption arrangements).
C1608Exceptions to section 607
1
Section 607 does not apply in a case within subsection (2) or (3).
2
A case is within this subsection if the agreement or agreements for sale and repurchase are not what one would expect of persons dealing at arm's length.
3
A case is within this subsection if the interim holder has all the benefits and risks from fluctuations in the market value of the securities between their sale and repurchase.
4
This section is subject to any regulations under—
a
section 611 (power to modify Chapter 5 in non-arm's length case), and
b
sections 612 to 614 (powers to modify repo provisions: non-standard repo cases and redemption arrangements).
Additional tax treatment
C1609Additional income tax consequences of price differences
1
Subsections (2) and (3) apply if an amount is treated under section 607 as a payment of interest.
2
If the repurchase price is more than the sale price, the repurchase price is treated for other income tax purposes as reduced by the amount of the payment of interest.
3
If the sale price is more than the repurchase price, the repurchase price is treated for other income tax purposes as increased by the amount of the payment of interest.
4
“Other income tax purposes” means income tax purposes other than the purposes of—
a
sections 601 to 605 (deemed manufactured payments: repos), and
b
this Chapter.
5
The Treasury may by regulations provide for any amount which is treated under section 607 as received as a payment of interest to be treated, in such circumstances and so far as may be described in the regulations, as exempt pension income.
6
“Exempt pension income” means income which is eligible for relief from income tax as a result of section 613(4) or 614(2), (3) or (4) of ICTA or section 186 of FA 2004 (exemptions about pensions and annuities).
7
Section 261G of TCGA 1992 deals with the effect on the repurchase price for capital gains tax purposes of an amount being treated under section 607 as a payment of interest.
Interpretation
C1610Repurchase price in deemed manufactured payment case
1
This section applies if section 602 (deemed manufactured payments: repos) applies to a case in which section 607 applies.
2
References in sections 607 to 609 to the repurchase price are to be read as references to the repurchase price which is applicable as a result of section 604(2), (4) or (5).
Power to modify
611Power to modify Chapter in non-arm's length case
1
The Treasury may by regulations provide for—
a
sections 607 to 610 (price differences under repos), or
b
any of those sections,
to apply with modifications if the exception in section 608(2) (agreement not at arm's length) would otherwise prevent section 607 from applying.
2
Regulations under this section may make different provision for different cases.
3
Regulations under this section may contain incidental, supplemental, consequential and transitional provision and savings.
4
The incidental, supplemental and consequential provision may include modifications of—
a
section 604 (deemed increase in repurchase price: price differences under repos), and
b
section 605 (deemed increase in repurchase price: other income tax purposes).
5
In this section “modifications” includes exceptions and omissions.
6
Accordingly, the power in subsection (1) includes power to provide for any of sections 607 to 610 not to apply in relation to the case mentioned in that subsection.