Taxes Consolidation Act 1997 Schedule 25A paragraph 4

Effect of stock lending arrangements

Paragraph 4 sets out rules to prevent shares acquired under a stock lending arrangement from being counted towards the 5% shareholding threshold required for the capital gains tax exemption on disposals by an investor company of shares in an investee company under section 626B.

• A stock lending arrangement is one where a lender transfers shares to a borrower otherwise than by way of sale, with a requirement that the borrower transfer them back otherwise than by way of sale.
• During the period of the arrangement, the lender is treated as continuing to hold the shares and the borrower is treated as not holding them, for the purpose of determining whether the 5% shareholding condition in section 626B(2) is met.
• The arrangement period runs from the initial transfer to the borrower until the shares are returned to the lender or it becomes clear they will not be returned.
• If the lender or a fellow 51% group member reacquires the shares before the arrangement period ends, the deeming rule ceases to apply and the shares revert to their normal treatment.