Taxation of Chargeable Gains Act 1992 section 263CA

Stock lending: insolvency etc. of borrower

Section 263CA deals with the capital gains tax consequences when a borrower under a stock lending arrangement becomes insolvent and is unable to return some or all of the borrowed securities, and collateral is used to acquire replacement securities within 30 days.

• Where a borrower becomes insolvent and cannot return lent securities, the original transfer by the lender is generally not treated as a disposal for capital gains purposes, and replacement securities acquired using collateral within 30 days are treated as if they were returned under the original arrangement.
• The insolvent borrower is deemed to have acquired the unreturned securities at their market value on the date of insolvency, establishing a tax cost for those securities in the borrower's hands.
• If the replacement securities obtained are fewer than the unreturned securities, the lender is treated as having disposed of the shortfall on the insolvency date, with the disposal proceeds depending on whether all or only part of the available collateral was used.
• Any subsequent amounts the lender receives in respect of the borrower's outstanding liability for unreplaced securities are treated as chargeable gains arising to the lender at the time of receipt.