When do the accrued income repo rules in section 655 of the Income Tax Act 2007 apply?

Under section 125, the repo rules in section 655 apply to overseas securities where the sale agreement was entered into after 5 November 1996, and to all other securities (typically UK securities) where the sale agreement was entered into after 30 April 1995. Agreements made on or before these dates fall outside section 655 entirely.

How are the repo rules modified for sale agreements made before 9 April 2003?

Section 126 provides that for pre-9 April 2003 agreements, section 655 applies but without subsection (2). The test for whether a sale and repurchase arrangement exists under section 654(2) is simplified by removing paragraph (b), making the definition of a repo arrangement narrower for these older agreements.

What simplified test applies for non-standard and redemption repo arrangements before April 2003?

For pre-9 April 2003 agreements, when determining whether non-standard repo arrangements under section 656 or redemption arrangements under section 657 exist, the detailed conditions in paragraphs (b) and (c) of section 654(2) are replaced with a single broader test: it suffices that the transferor or a connected person acquires an option to buy back the securities.

What are overseas securities for the purposes of sections 125 and 126 of the Income Tax Act 2007?

Overseas securities carry the same meaning as defined in section 567 of Part 11 of the Income Tax Act 2007. The distinction matters because overseas securities have a later date threshold — 5 November 1996 — compared with 30 April 1995 for other securities, before which the repo accrued income rules do not apply.

Income Tax Act 2007 sections 125–126

Sale and repurchase arrangements

Sections 125 and 126 set out the transitional rules that determine when the accrued income provisions for sale and repurchase (repo) arrangements apply, depending on the date the original sale agreement was entered into and whether the securities are overseas securities.

The repo rules in section 655 only apply to overseas securities where the sale agreement was entered into after 5 November 1996, and to all other securities where the sale agreement was entered into after 30 April 1995.
Where the sale agreement was made before 9 April 2003, section 655 applies but without subsection (2), and the definition of a sale and repurchase arrangement is narrower, omitting certain conditions.
For pre-9 April 2003 agreements, when determining whether non-standard repo arrangements or redemption arrangements exist under sections 656 and 657, a simplified test applies: it is sufficient that the transferor (or a connected person) acquires an option to buy back the securities.
"Overseas securities" carries the same meaning as in Part 11 of the Act, as defined in section 567.

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