How are sale and repurchase agreements (repos) treated for capital gains tax under section 263A TCGA 1992?

Under section 263A, the disposals and acquisitions involved in a repo are generally disregarded for CGT purposes. Neither the original owner's sale and repurchase nor the interim holder's purchase and sale back give rise to a chargeable gain or allowable loss, reflecting the economic substance of the arrangement as secured lending rather than a genuine transfer of ownership.

What happens for CGT purposes if a repo agreement does not complete?

If it becomes apparent the interim holder will not sell the securities back, the interim holder is treated as acquiring them at market value at that point. Similarly, if the original owner will not repurchase, they are treated as disposing of the securities at market value at that date, triggering the appropriate chargeable gain or allowable loss.

When does the CGT disregard under section 263A not apply to a repo?

The disregard does not apply where the repo is not on arm's length terms, where the interim holder bears the benefits or risks of market value fluctuations during the repo period, or where there is a mismatch involving qualifying corporate bonds — for example, non-qualifying bonds are sold but qualifying corporate bonds are repurchased, or vice versa.

How is the financing cost in a repo treated for tax purposes under United Kingdom law?

The price difference between the sale and repurchase prices in a repo represents the financing cost, essentially interest for the lending period. This amount is not treated as a capital gain under section 263A but is instead dealt with under the income tax repo rules in section 607 of the Income Tax Act 2007, which governs the income treatment of price differences.

Taxation of Chargeable Gains Act 1992 section 263A

Agreements for sale and repurchase of securities

Section 263A deals with the capital gains tax treatment of sale and repurchase agreements for securities (commonly known as "repos"), ensuring that these financing arrangements are generally disregarded for CGT purposes.

A repo arises where an original owner sells securities to an interim holder and is obliged (or has an option) to buy them back under the same or a related agreement — the sale and repurchase are generally ignored for CGT
If the repurchase falls through, the interim holder is treated as acquiring the securities at market value, and the original owner is treated as disposing of them at market value, at the point it becomes apparent the repo will not complete
The CGT disregard does not apply where the arrangements are not on arm's length terms, or where the interim holder bears the benefits or risks of market value fluctuations in the securities during the repo period
The disregard also does not apply where there is a mismatch involving qualifying corporate bonds — for example, where non-qualifying corporate bonds are sold but qualifying corporate bonds are repurchased, or vice versa

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