Income Tax Act 2007 section 596

Deemed manufactured payments: stock lending arrangements

Section 596 addresses what happens when a borrower under a stock lending arrangement does not make a manufactured payment to the lender, even though the lender has given up dividends or interest on the securities lent.

• When securities are lent under a stock lending arrangement, the borrower normally makes a manufactured payment to the lender to compensate for any dividends or interest the lender misses out on
• If the arrangement is structured so that no manufactured payment is actually made to the lender, the borrower is deemed to have made one anyway
• This deemed manufactured payment triggers the same tax rules that apply to actual manufactured payments — potentially imposing either a main charge on the borrower or a reverse charge on the lender where UK or overseas securities are involved
• The borrower receives no tax relief for the deemed manufactured payment, and quasi-stock lending arrangements are treated in the same way as standard stock lending arrangements