CG13350 - Introduction and computation: occasions of charge: bed and breakfasting
The term bed and breakfasting鈥痗overs鈥痑rrangements in which a person sells an asset only to buy it back again鈥�a short time鈥痩补迟别谤. This may be done to trigger a gain that qualifies for some form of relief or to trigger a loss even though the intention is to hold the asset in the longer term. The following points arise for capital gains purposes.
Share identification rules
The share identification legislation contains rules about how disposals and acquisitions of the same type of shares or securities within a short period are matched. Guidance on these rules can be found at CG51500P for Capital Gains Tax and CG51600P for Corporation Tax.
Repo contracts
Combined sale and repurchase contracts for shares and securities are鈥�a very common鈥痗ommercial transaction, often referred to simply as 鈥渞epos鈥�. For companies, any profit or loss on the transaction is taxed as the profit or loss on a deemed loan relationship for Corporation Tax purposes, 蝉别别鈥�鈥痑苍诲 CFM46000.鈥�
It will be unusual for a person who is chargeable to Income Tax and Capital Gains Tax to be a party to a repo.鈥疶he return from such an arrangement is taxed under the Income Tax rules on disguised interest, 蝉别别鈥�鈥痑苍诲 SAIM2700. provides that repos are not treated as involving any disposal of the asset for Capital Gains Tax.
Bed and breakfasting to establish a tax loss
is a Targeted Anti-Avoidance Rule that deals with the creation of artificial losses. Unlike the rules mentioned above, it can apply to the disposal of any type of asset, rather than just shares and securities.
This rule should be considered where a person has entered into a bed and breakfast transaction involving any asset in order to trigger a capital loss (see CG15835).
Bed and breakfasting generally
Aside from the rules mentioned above, there will only be a disposal for capital gains purposes where a person genuinely鈥痶ransfers beneficial ownership鈥痮f the asset, 蝉别别鈥�CG10702, so that鈥�
both parties to the transaction are genuinely exposed to a movement in the price of the asset between sale and repurchase; and鈥�
the transactions take place at鈥痑rm鈥檚鈥痩ength (or market value), 蝉别别鈥�CG14480P
There is no transfer of beneficial ownership if鈥痶here is an unconditional agreement to repurchase the asset at the time of sale.
Where the sale and repurchase of securities are made under a single agreement then the repo treatment described above will apply.
Where other types of asset are involved, or the repurchase is provided for in a separate agreement, then it is possible that beneficial ownership of the asset is retained and that there will be no disposal for capital gains purposes.鈥�