CFM17536 - Repos: FA 2007 rules for companies: first tax consequence for creditor repos and creditor quasi-repos

This guidance describes the corporation tax treatment of sale and repurchase arrangements (“repos”) where the initial sale of securities takes place on or after 1 October 2007

Creditor repos and creditor quasi-repos: first tax consequence (Paragraph 9 Schedule 13 FA 2007)

The first tax consequence for creditor repos and creditor quasi-repos is that the lender is taxed, in respect of its income arising while the arrangement is in force, as if it did not hold the securities that are initially sold, and did not make any manufactured payments in respect of those securities.

This rule corresponds to the rule for debtor repos and debtor quasi-repos in paragraph 4 Schedule 13 FA 2007 ( CFM17514). Its purpose is to ensure that the lender is not taxed on any income that arises on the securities during the period of the repo, and does not obtain tax relief for any manufactured payments made. The rule reflects the fact that neither the income nor the payment will generally be recognised for accounts purposes.

There are two qualifications to this rule (see CFM17538).