Income Tax Act 2007 section 607

Treatment of price differences under repos

Section 607 deals with how the difference between the sale price and the repurchase price in a repo transaction is treated for income tax purposes.

• In a repo (sale and repurchase agreement), one party sells securities and agrees to buy them back later, usually at a different price.
• The difference between the original sale price and the repurchase price is treated as an income payment (similar to interest) rather than a capital gain or loss.
• This ensures that repo transactions, which are economically equivalent to secured lending, are taxed in a way that reflects their true commercial substance.
• The rules apply to arrangements involving UK securities and ensure that the deemed income amount is brought into charge to income tax in the appropriate tax year.