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HMRC internal manual

Corporate Finance Manual

Deemed loan relationships: repos: tax rules: back to back repos

Treatment of ‘back to back’ repos

In a ‘back to back’ repo, a financial trader that has bought securities under a repo sells them on under a repo to one or more persons. This is done, for instance, to profit from the spread between bid and ask repo interest rates, i.e. the interest receivable on the purchase (creditor) transaction being higher than the interest payable on the sale (debtor) transaction. The spread will be wider if the securities acquired under the purchase become ‘special collateral’ (see CFM46130).

No tax adjustments will normally be required to a financial trader’s accounting profits in respect of back to back repos, including where a holding acquired under a single creditor repo is the subject of more than one debtor repo (or where a holding acquired under more than one creditor repo is the subject of a single debtor repo). This is subject to general rules requiring adjustments, such as the ‘interest long stop’ (CFM35800).