CFM17295a - Repos: taxation: exchange differences example

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

Exchange differences: section 730BB ICTA88

A company accounts in sterling. It sells securities for $900,000, with an agreement to buy them back for $918,000 after six months. At the start of the transaction the exchange rate is £1=$1.50 so the sterling value of the sale price is £600,000. At the repurchase date the exchange rate is £1=$1.45. Therefore the sterling value of the original sale price is £621,000. The original owner has therefore made an exchange loss of £21,000 in respect of the original sale price, which is brought into account under section 730BB.

The repurchase price in sterling is £633,000. The price differential under the repo agreement is £12,000 (£633,000 minus £621,000). This amount will be taxed and relieved under section 730A (2) ICTA.