Definition
Securities Lending and Borrowing Tax Treatment
Securities lending lets an owner lend shares for a fee, with specific rules ensuring the temporary transfer is not treated as a taxable sale.
Under an approved securities lending and borrowing mechanism, an investor can lend shares to a borrower for a fee and get them back later. Tax rules clarify that such a lending transaction, when done through the prescribed scheme, is not regarded as a transfer that triggers capital gains.
This treatment lets long-term holders earn extra return without disturbing their holding period or tax position, while supporting market liquidity and short-selling. It is an example of how tax design accommodates market mechanisms that involve temporary, not permanent, transfer of assets.
Related terms
- Set-Off and Carry Forward of LossesThese rules let taxpayers adjust losses against income of the same or future years, subject to conditions on the type of loss and how long it can be carried forward.
- Capital Gains Account SchemeThe Capital Gains Account Scheme lets taxpayers park capital gains in a designated bank account to retain tax exemption until they reinvest in a specified asset.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.