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PART 11 continued CHAPTER 4 continued
(2) If the deemed payment is representative of a dividend on UK shares (other than one falling within subsection (3)), the repurchase price of the UK shares is treated for the purposes of section 607 (treatment of price differences under repos) as increased by an amount equal to the amount of the dividend.
(3) So far as the deemed payment is representative of a dividend on UK shares—
(a) paid by a company to which Part 4 of FA 2006 applies in respect of profits of C (tax-exempt), or
(b) paid by a group to which that Part applies in respect of profits of G (property rental business),
the repurchase price of the UK shares is treated for the purposes of section 607 as increased by the gross amount of the dividend.
(4) If the deemed payment is representative of a periodical payment of interest on UK securities, the repurchase price of the UK securities is treated for the purposes of section 607 as increased by the gross amount of the periodical payment of interest.
(5) If the deemed payment is representative of an overseas dividend on overseas securities, the repurchase price of the overseas securities is treated for the purposes of section 607 as increased by the gross amount of the overseas dividend.
(1) The deemed increase in the repurchase price which is made by section 604(2), (4) or (5) for the purposes of section 607 also has effect for all other income tax purposes (except sections 601, 602, 604 and this section), if condition A or B is met.
(2) Condition A is that, as a result of the increase, there is no difference for the purposes of section 607 between the sale price and the repurchase price.
(3) Condition B is that, as a result of either of the exceptions in section 608, section 607 does not apply.
(4) For the effect of the deemed increase of the repurchase price for capital gains tax purposes see section 261F of TCGA 1992.
(1) This section applies for the purposes of this Chapter.
(2) “C (tax-exempt)” has the meaning given by section 105(3) of FA 2006.
(3) “Distribution” means—
(a) in the case of UK shares, a dividend,
(b) in the case of UK securities, a periodical payment of interest, and
(c) in the case of overseas securities, an overseas dividend.
(4) “G (property rental business)” has the meaning given by paragraph 2 of Schedule 17 to FA 2006.
(5) “Group” has the meaning given by section 134 of FA 2006.
(6) “Manufactured dividend” has the same meaning as in Chapter 2 (see section 573(1)(a)).
(7) “The repurchase price of the securities” means the amount which, under the sale agreement or the related agreement (if any), the original owner or connected person is to pay for the securities bought back.
(8) “The rules about manufactured payments” means—
(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.
(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.
(1) This section applies if—
(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.
(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 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 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
(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).
(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 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 repo cases and redemption arrangements).
(1) Subsections (2) and (3) apply if an amount is treated under section 607 as a payment of interest.
(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 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.
(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 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.
(1) This section applies if section 602 (deemed manufactured payments: repos) applies to a case in which section 607 applies.
(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).
(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.
(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 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).
(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.
(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
(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 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.
(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 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 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.
(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.
(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.
(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
(c) any of those sections,
to apply with modifications in relation to cases involving redemption arrangements.
(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,
(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.
(1) Regulations under section 612 or 613 may make different provision for different cases.
(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 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.
(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.
Income Tax Act 2007