CFM17220 - Repos: taxation: method of bringing price differentials into account

This guidance describes the treatment of repos for income tax and capital gains tax purposes, and for corporation tax purposes where the original owner transfers the securities to the interim holder before 1 October 2007

How to bring the price differential into account

Where section 730A applies to a corporate, the interest is deemed to be interest on a loan relationship to which the company is party. The interest must be brought into account in accordance with an amortised cost basis CFM16025 (or for accounting periods starting before 1 January 2005 an authorised accruals basis CFM5105).

The deemed loan relationship is one to which all the provisions of Chapter II of Part 4 of FA96 apply. This includes provisions such as the unallowable purpose CFM6210 and interest long stop CFM5600 rules.

For non-corporates the deemed interest is treated as interest on a loan. Ordinarily, the interest will be deductible only if paid for the purposes of a trade.