CFM17265 - Repos: taxation: transfers disregarded under loan relationships rules

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

Disregarding transfers under loan relationship rules

Disposals and acquisitions of loan relationships, including transfers, usually come under the definition of 'related transaction' in FA96/S84 see CFM5065. However, FA96/SCH9/PARA15 (1) determines that the disposal and acquisition of an asset representing a loan relationship in pursuance of a repo or stock loan ( CFM17055) are not related transactions. Thus no debit or credit normally falls to be brought into account in relation to the disposal and reacquisition in pursuance of the repo.

This means that

• any debits and credits arising on the transfer or retransfer of a security are ignored (Para 15(1)), and
• any debits or credits accruing, such as discount or exchange losses, will continue to be brought into account by the original holder/stock lender (Para 15(4A)).

However, the

• discharge, or
• redemption

of the security is treated as a related transaction, and any debits or credits are taxable.

Paragraph 15 does not apply to any disposal or acquisition of the securities made by the interim holder during the period of the repo.

In relation to transactions entered into on or after 9 April 2003, FA96/SCH 9/PARA15 will not apply in any case where ICTA88S730A is prevented from applying by Section 730A (8), see CFM17225. This ensures for instance that the increased repurchase price brought about by section 737C can be brought into account even where section 730A does not apply.