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Income Tax Bill


Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 5 — Price differences under repos

316

 

(a)   

Chapter 2 of this Part and regulations made under it,

(b)   

Chapter 3 of this Part,

(c)   

Chapter 9 of Part 15 and regulations made under it, and

(d)   

regulations made under section 973, so far as they apply to a person

who pays a manufactured dividend.

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(9)   

Section 589 (meaning of “gross amount” of interest, manufactured overseas

dividends and overseas dividends for purposes of Chapter 2) also applies for

the purposes of this Chapter.

(10)   

Section 918(7) (meaning of “gross amount” of manufactured dividend in Real

Estate Investment Trust case) also applies for the purposes of this Chapter.

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Chapter 5

Price differences under repos

Main tax treatment

607     

Treatment of price differences under repos

(1)   

This section applies if—

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(a)   

there is a repo in respect of securities, and

(b)   

under the repo, the original owner has transferred the securities to the

interim holder.

(2)   

Any difference between the sale price of the securities and the repurchase price

of the securities is treated for income tax purposes as follows.

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(3)   

If the repurchase price is more than the sale price, the difference is treated as a

payment of interest made by the repurchaser on a deemed loan from the

interim holder of an amount equal to the sale price.

(4)   

If the sale price is more than the repurchase price, the difference is treated as a

payment of interest made by the interim holder on a deemed loan from the

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repurchaser of an amount equal to the repurchase price.

(5)   

In either case, the payment of interest is treated for income tax purposes as—

(a)   

becoming due when the repurchase price becomes due, and

(b)   

paid when that price is paid.

(6)   

Subsection (7) applies in calculating the sale price for the purposes of this

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section if the repo involves the exercise of an option (see section 569(4)(b) and

(c)).

(7)   

The amount of any consideration given for the option is—

(a)   

in a case falling within section 569(4)(b), added to what would

otherwise be the price, and

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(b)   

in a case falling within section 569(4)(c), subtracted from what would

otherwise be the price.

(8)   

This section is subject to section 608 (exceptions) and Chapter 6 (powers to

modify repo provisions: non-standard repo cases and redemption

arrangements).

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Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 5 — Price differences under repos

317

 

608     

Exceptions to section 607

(1)   

Section 607 does not apply in a case within subsection (2) or (3).

(2)   

A case is within this subsection if the agreement or agreements for sale and

repurchase are not what one would expect of persons dealing at arm’s length.

(3)   

A case is within this subsection if the interim holder has all the benefits and

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risks from fluctuations in the market value of the securities between their sale

and repurchase.

(4)   

This section is subject to any regulations under—

(a)   

section 611 (power to modify Chapter 5 in non-arm’s length case), and

(b)   

sections 612 to 614 (powers to modify repo provisions: non-standard

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repo cases and redemption arrangements).

Additional tax treatment

609     

Additional income tax consequences of price differences

(1)   

Subsections (2) and (3) apply if an amount is treated under section 607 as a

payment of interest.

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(2)   

If the repurchase price is more than the sale price, the repurchase price is

treated for other income tax purposes as reduced by the amount of the

payment of interest.

(3)   

If the sale price is more than the repurchase price, the repurchase price is

treated for other income tax purposes as increased by the amount of the

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payment of interest.

(4)   

“Other income tax purposes” means income tax purposes other than the

purposes of—

(a)   

sections 601 to 605 (deemed manufactured payments: repos), and

(b)   

this Chapter.

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(5)   

The Treasury may by regulations provide for any amount which is treated

under section 607 as received as a payment of interest to be treated, in such

circumstances and so far as may be described in the regulations, as exempt

pension income.

(6)   

“Exempt pension income” means income which is eligible for relief from

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income tax as a result of section 613(4) or 614(2), (3) or (4) of ICTA or section

186 of FA 2004 (exemptions about pensions and annuities).

(7)   

Section 261G of TCGA 1992 deals with the effect on the repurchase price for

capital gains tax purposes of an amount being treated under section 607 as a

payment of interest.

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Interpretation

610     

Repurchase price in deemed manufactured payment case

(1)   

This section applies if section 602 (deemed manufactured payments: repos)

applies to a case in which section 607 applies.

 
 

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 6 — Powers to modify repo provisions

318

 

(2)   

References in sections 607 to 609 to the repurchase price are to be read as

references to the repurchase price which is applicable as a result of section

604(2), (4) or (5).

Power to modify

611     

Power to modify Chapter in non-arm’s length case

5

(1)   

The Treasury may by regulations provide for—

(a)   

sections 607 to 610 (price differences under repos), or

(b)   

any of those sections,

   

to apply with modifications if the exception in section 608(2) (agreement not at

arm’s length) would otherwise prevent section 607 from applying.

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(2)   

Regulations under this section may make different provision for different

cases.

(3)   

Regulations under this section may contain incidental, supplemental,

consequential and transitional provision and savings.

(4)   

The incidental, supplemental and consequential provision may include

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modifications of—

(a)   

section 604 (deemed increase in repurchase price: price differences

under repos), and

(b)   

section 605 (deemed increase in repurchase price: other income tax

purposes).

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(5)   

In this section “modifications” includes exceptions and omissions.

(6)   

Accordingly, the power in subsection (1) includes power to provide for any of

sections 607 to 610 not to apply in relation to the case mentioned in that

subsection.

Chapter 6

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Powers to modify repo provisions

612     

Non-standard repo cases

(1)   

The Treasury may by regulations provide for—

(a)   

sections 601 to 606 (deemed manufactured payments: repos),

(b)   

sections 607 to 610 (treatment of price differences under repos), or

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(c)   

any of those sections,

   

to apply with modifications in relation to non-standard repo cases.

(2)   

A case is a non-standard repo case if—

(a)   

there is a repo in respect of securities,

(b)   

under the repo, there has been a sale (“the original sale”) of the

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securities by the original owner to the interim holder, and

(c)   

any of conditions A to E is met in relation to the repo.

(3)   

Condition A is that—

(a)   

the obligation to buy back the securities is not performed, or

(b)   

the option to buy them back is not exercised.

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Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 6 — Powers to modify repo provisions

319

 

(4)   

Condition B is that provision is made by or under an agreement for different or

additional UK shares, UK securities or overseas securities to be treated as (or

as included with) representative securities.

(5)   

Condition C is that provision is made by or under an agreement for any UK

shares, UK securities or overseas securities to be treated as not included with

5

representative securities.

(6)   

Condition D is that provision is made by or under an agreement for the sale

price or repurchase price to be decided or varied wholly or partly by reference

to post-agreement fluctuations.

(7)   

Condition E is that provision is made by or under an agreement for a person to

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be required, in a case where there are post-agreement fluctuations, to make a

payment in the period—

(a)   

beginning immediately after the making of the agreement for the

original sale, and

(b)   

ending when the repurchase price becomes due.

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(8)   

“Post-agreement fluctuations” are fluctuations in the value of —

(a)   

securities transferred in pursuance of the original sale, or

(b)   

representative securities,

   

which occur in the period after the making of the agreement for the original

sale.

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(9)   

“Representative securities” are UK shares, UK securities or overseas securities

which, for the purposes of the repurchase, are to represent securities

transferred in pursuance of the original sale.

613     

Redemption arrangements

(1)   

The Treasury may by regulations provide for—

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(a)   

sections 601 to 606 (deemed manufactured payments: repos),

(b)   

sections 607 to 610 (treatment of price differences under repos), or

(c)   

any of those sections,

   

to apply with modifications in relation to cases involving redemption

arrangements.

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(2)   

A case involves redemption arrangements if—

(a)   

arrangements, corresponding to those made in cases where there is a

repo, are made by an agreement, or one or more related agreements, in

relation to securities that are to be redeemed in the period after their

sale,

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(b)   

the securities are UK shares, UK securities or overseas securities, and

(c)   

the arrangements are such that the seller or a person connected with the

seller (instead of being required to repurchase the securities or

acquiring an option to do so) is granted rights in respect of the benefits

that will result from the redemption.

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614     

Sections 612 and 613: supplementary

(1)   

Regulations under section 612 or 613 may make different provision for

different cases.

 
 

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses

320

 

(2)   

Regulations under either section may contain incidental, supplemental,

consequential and transitional provision and savings.

(3)   

The incidental, supplemental and consequential provision may, in the case of

regulations about sections 607 to 610, include modifications of—

(a)   

section 604 (deemed increase in repurchase price: price differences

5

under repos), and

(b)   

section 605 (deemed increase in repurchase price: other income tax

purposes).

(4)   

In this section and sections 612 and 613 “modifications” includes exceptions

and omissions.

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(5)   

Accordingly, a power in sections 612 and 613 to provide for a provision to

apply with modifications in relation to a particular case includes power to

provide for the provision not to apply in relation to that case.

Part 12

Accrued income profits

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Chapter 1

Introduction

615     

Overview of Part

(1)   

This Part makes provision about—

(a)   

accrued income profits and losses, and

20

(b)   

exemptions which apply where there is interest on securities.

(2)   

In this Part “accrued income profits” means profits which under Chapter 2 are

treated as made where securities which carry or have carried interest are

transferred.

(3)   

See sections 628, 630 and 670(2) and (3) for when such profits are treated as

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made.

(4)   

In this Part “accrued income losses” means losses which under Chapter 2 are

treated as made where securities which carry or have carried interest are

transferred.

(5)   

See section 628 for when such losses are treated as made.

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(6)   

For the meaning of “securities”, “transfer” and “interest”, see sections 619, 620

and 671 respectively.

Chapter 2

Accrued income profits and losses

Charge to tax

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616     

Charge to tax on accrued income profits

Income tax is charged on accrued income profits.

 
 

 
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