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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Deemed loan relationships: repos: tax rules: creditor quasi-repos: second tax consequence

Creditor repos and creditor quasi-repos: second tax consequence (CTA09/S546)

The second tax consequence for creditor repos and creditor quasi-repos is that the whole arrangement is treated as a loan relationship, and that any finance return reflected in the accounts in accordance with GAAP is treated as interest on that loan relationship. This rule corresponds to the rule for debtor repos and debtor quasi-repos in CTA09/S551 (CFM46410).

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.

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.

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 CTA09/S551; 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.