CFM17542 - Repos: FA 2007 rules for companies: second tax consequence – whole arrangement treated as loan relationship

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

Second tax consequence: whole arrangement is treated as a loan relationship

An advance under a creditor repo or creditor quasi-repo is treated as a money debt owed to the lender (or, if the lender is a member of a partnership, to the partnership) by the person who initially sold the securities. This money debt is treated as arising from a transaction for the lending of money, so the lender is treated as party to a creditor loan relationship in an amount equal to the advance (s81 FA 1996).

The effect of treating the whole arrangement as a loan relationship is that all amounts in the lender’s accounts in respect of the advance in accordance with GAAP, including items such as exchange gains and losses, are brought into account under the loan relationship rules in Chapter 2 of Part 4 of FA 1996.