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01 October 2000
The introduction of new electronic share trading by the London Stock Exchange in 1997 saw a change in the law so that stock lending arrangements no longer had to be approved by the Revenue. Previously, to be approved, a stock lending arrangement had to require the borrower to manufacture payments representative of interest or dividends paid on the borrowed stock.
The introduction of new electronic share trading by the London Stock Exchange in 1997 saw a change in the law so that stock lending arrangements no longer had to be approved by the Revenue. Previously, to be approved, a stock lending arrangement had to require the borrower to manufacture payments representative of interest or dividends paid on the borrowed stock.
To prevent avoidance through a person lending stock without such a requirement, but taking an equivalent return in a non-taxable form, section 736B, Taxes Act 1988 was introduced in Finance Act 1997. This deems a representative payment to have been made where no payment is actually made. Under related legislation in Schedule 23A to the Taxes Act 1988, the lender may be taxed on this deemed payment and the borrower may obtain a matching tax deduction for it.
However, it is possible for companies to take advantage of this rule by constructing stock lending arrangements with a lender who is either outside the United Kingdom tax net or which has tax losses which would otherwise not be used. The intention is to use the arrangements to switch income from one person to another in order to generate a tax deduction while there is no actual payment. The new legislation will remove the availability of that deduction in all cases.
The new rules will apply to payments that are deemed to be made after 2 October 2000.
(Source: Inland Revenue press release dated 2 October 2000.)
To prevent avoidance through a person lending stock without such a requirement, but taking an equivalent return in a non-taxable form, section 736B, Taxes Act 1988 was introduced in Finance Act 1997. This deems a representative payment to have been made where no payment is actually made. Under related legislation in Schedule 23A to the Taxes Act 1988, the lender may be taxed on this deemed payment and the borrower may obtain a matching tax deduction for it.
However, it is possible for companies to take advantage of this rule by constructing stock lending arrangements with a lender who is either outside the United Kingdom tax net or which has tax losses which would otherwise not be used. The intention is to use the arrangements to switch income from one person to another in order to generate a tax deduction while there is no actual payment. The new legislation will remove the availability of that deduction in all cases.
The new rules will apply to payments that are deemed to be made after 2 October 2000.
(Source: Inland Revenue press release dated 2 October 2000.)
