Stock lending arrangements - changes to tax charges
Legislation will be introduced next year to relieve the tax charges
that might otherwise arise on persons who have entered into stock
lending arrangements with a financial institution which subsequently
becomes insolvent.
The changes apply where the borrower becomes insolvent, or to sale and
repurchase arrangements ('repos') where the purchaser becomes insolvent,
from 1 September 2008. Consequently, and importantly, they will cover
stock lending arrangements entered into with Lehman Brothers.
Legislation will be introduced in Finance Bill 2009 to disapply the rule
that treats the non-return of borrowed securities as a disposal by the
lender for the purposes of tax on chargeable gains (both for individuals
and companies), provided that the lender uses collateral provided by the
borrower to acquire replacement securities of the same kind in the
market.
The Finance Bill will also contain a provision removing,
retrospectively, the stamp duty or Stamp Duty Reserve Tax charge where
the lender in a stock lending arrangement, or repo counterparty, uses
collateral provided by the borrower (who has since become insolvent) to
buy replacement securities of the same kind.
Our view
The proposed exemptions represent a welcome clarification in relation to
the non-return of stock and collateral, and are a sensible and proportionate
response to the issues faced by those required to re-align their portfolios, as
highlighted in particular by the collapse of Lehman Brothers in mid September
this year.
