Introduction Background Note
21.A stock lending arrangement involves the transfer of securities from a lender to a borrower, under an agreement that provides for securities of the same kind and amount to be returned to the lender at a prescribed date. Although described as a “loan”, the transactions involve the transfer of full title to the securities.
22.A sale and repurchase arrangement or ‘repo’ involves the transfer of securities from a seller to a purchaser under an agreement that provides for the purchaser to sell back to the seller at a later date securities of the same kind and amount. Again, the transactions involve the transfer of full title to the securities.
23.Because of the essentially temporary nature of the changes of ownership of the securities, the stamp duty and SDRT legislation includes special rules that ignore the transfer from the lender/seller to the borrower/purchaser and the return of the equivalent securities in the opposite direction.
24.Where securities of the same kind and amount are not, however, returned to the lender/seller for whatever reason, an SDRT charge arises in the hands of the borrower/purchaser on the basis that the original transfer is then regarded as an outright sale.
25.But where the failure to return the securities results from the insolvency of the other party, the imposition of an SDRT charge on the original transfer will reduce funds available to the creditors of the insolvent entity and/or restrict the ability of the solvent entity to restore his original position.
26.This section and Schedule will prevent that charge arising by providing that in this particular circumstance the normal rules will not apply.
27.Where the solvent party to an arrangement does not have stock returned to him, he may wish to replace those stocks by means of a purchase in the market. But where this occurs, a further stamp duty or SDRT charge arises even though he is simply trying to put himself back in the same position as he would have been in had the arrangement not terminated.
28.This section and Schedule prevent that outcome, in cases of insolvency, by removing the SDRT charge from purchases of replacement securities of the same kind and amount as those originally transferred.
29.Where, under a stock lending arrangement, the borrower provides collateral in the form of other chargeable securities and the arrangement terminates owing to insolvency, the lender will be regarded as having purchased the collateral securities for consideration represented by the value of the original securities lent. This will produce another unexpected SDRT charge and this section and Schedule will also remove that charge. The lender will therefore be able to restore his position without the penalty of additional SDRT charges that arise through no fault of his own.
30.Section 32 and Schedule 13 complement this section and Schedule, giving relief from tax on chargeable gains where securities borrowed under a stock loan arrangement are not returned to the lender in broadly similar circumstances.