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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Deemed loan relationships: repos: tax rules: other types of repo

Other types of repo arrangement

There are a variety of repo arrangements that are not financing transactions, for example:

  • ‘Market Value’ repos: instead of the repurchase price for the securities being the sale price plus the finance charge (with adjustments in net-paying cases), the securities are repurchased at their market value.
  • ‘Negative Interest’ repos: in exceptional cases of Special Collateral Repos (see CFM46130), the securities sold may be in such short supply that the seller does not pay any finance charge on the cash collateral to the buyer, and the buyer in fact makes a payment to the seller.
  • A transaction that is initially a debtor repo or creditor repo may cease to be one: for instance its terms might be adjusted so that it becomes a market value repo.

Such transactions are outside the scope of CTA09/PT6/CH10. There are no special rules that apply to them. For financial traders for whom all such transactions are on trading account, the correct result for tax purposes should be obtained by following the treatment in the accounts.

The absence of a special rule for negative interest repos reverses the approach of the previous rules: under ICTA88/S730A(2)(b), where the sale price exceeded the repurchase price, the excess was treated as a payment of interest made by the purchaser to the seller. The previous approach continues to apply for taxpayers within the charge to income tax (see ITA07/S607(4) the replacement for ICTA88/S730A (2)(b) for income tax-payers from 6 April 2007).