What does section 605 of the Income Tax Act 2007 do?

Section 605 extends the deemed increase in the repurchase price established by section 604 so that it applies for wider income tax purposes beyond the immediate repo transaction. This ensures the adjusted repurchase price is used consistently wherever it is relevant in computing income tax liabilities or entitlements across the tax code.

Why is the deemed increase in repurchase price extended to other income tax purposes?

Without section 605, a mismatch could arise where one part of the tax code recognises a higher repurchase price whilst another uses the original unadjusted figure. The extension prevents this inconsistency, ensuring a coherent approach across the income tax regime when dealing with repo and stock lending arrangements.

How does section 605 interact with section 604 of the Income Tax Act 2007?

Section 604 deems the repurchase price to be increased to reflect economic realities such as manufactured payments during a repo arrangement. Section 605 builds on this by ensuring the increased price is treated as the actual repurchase price for all other income tax calculations, including computing profits, gains, and related charges or reliefs.

Can you give an example of how section 605 applies in practice?

If securities are sold for £100,000 under a repo with a £102,000 repurchase price, and section 604 deems this increased to £103,500 for manufactured dividends, section 605 ensures the £103,500 figure is used for all other income tax calculations — such as computing overall profit or loss and determining any related tax charge or relief.

Income Tax Act 2007 section 605

Deemed increase in repurchase price: other income tax purposes

Section 605 extends the circumstances in which the deemed increase in the repurchase price under section 604 applies, ensuring the adjustment has effect for wider income tax purposes beyond the immediate repo transaction.

The deemed increase in repurchase price established by section 604 is not limited to the specific context of that section alone
This section broadens the application of the price adjustment so that it takes effect for other income tax purposes as well
The provision ensures consistency in the tax treatment of repo transactions across different parts of the income tax code
The section was amended by Finance Act 2013, Schedule 12, paragraph 15(2)(b)

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