CFM17544 - Repos: FA 2007 rules for companies: second tax consequence – lender taxed on finance return

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: lender is taxed on finance return

Any amount that, in accordance with GAAP, is recorded in the accounts of the lender (or, if the lender is a member of a partnership that makes the advance, in the accounts of the partnership) as a finance return in respect of the advance is treated as interest under that loan relationship.

This deemed interest is treated as received when “the relevant repurchase” takes place or when it becomes apparent that that repurchase will not take place. “The relevant repurchase” means the subsequent sale by the lender of the securities or (in the case of a creditor quasi-repo) the subsequent sale of the securities by the lender or the transfer of the asset from the lender. This rule provides symmetry with the rule for debtor repos and debtor quasi-repos in paragraph 5 Schedule 13 FA 2007 ( CFM17524); the date of receipt does not have any bearing on the date on which the interest is brought into account for loan relationships purposes in the hands of the lender.