Taxation of Chargeable Gains Act 1992 section 263B

Stock lending arrangements

Section 263B sets out the capital gains tax treatment of stock lending arrangements, under which securities are temporarily transferred between a lender and a borrower without a sale taking place, and provides rules for when the arrangement breaks down or the borrowed securities are disposed of by the borrower.

• A stock lending arrangement is one where a lender transfers securities to a borrower (not by way of sale) and the borrower is required to transfer equivalent securities back (also not by way of sale) — disposals and acquisitions under such arrangements are generally disregarded for capital gains tax
• If the borrower sells the borrowed securities and fulfils the return obligation using different securities of the same description, the tax position is determined as though the replacement securities were the ones actually disposed of
• If it becomes clear the borrower will not return the securities, the lender is treated as having disposed of them at market value at that point, and the borrower is treated as having acquired them for the same amount
• Securities are only considered to be of the same description if they are in the same quantities, carry the same rights against the same persons, and are of the same type and nominal value