CFM17280 - Repos: taxation: transfers disregarded for capital gains purposes

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 for capital gains purposes

As with stock lending ( CFM17080) disposal and acquisition under a repo is not generally treated as such for CG purposes. The legislation is in TCGA92/S263A which borrows the definition of repo from ICTA88/S730A (1). However, Section 263A does not apply, and CGT will operate, if any of the benefits or risks are passed to the interim holder (section 263A (3) (b)), or if the transaction is not such as would have been agreed by parties operating at arms length. This is in contrast to Section 730A (8) (b) and ITA07/S608 (3), which disapplies Section 730A or, as the case may be ITA07/S607 where all of the risks and benefits are transferred to the interim holder, see CFM17225. In addition, unlike Section 730A and Chapter 5 Part 11 ITA07, Section 263A will not apply where the repurchaser is or may be different from the original owner.

Securities may be redeemed during the period of the repo. In this case the original owner may require the interim holder not to return the shares but to pay it an amount equal to the proceeds of redemption. If this happens then the original owner is deemed by SI1995/3220 to have disposed of the securities for the redemption proceeds. If the interim holder has held the shares to redemption then it is deemed not to dispose of them on redemption. If instead the interim holder has previously sold the shares then for the purpose of computing the chargeable gain their cost is deemed to be the amount paid to the original owner.