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HMRC internal manual

Capital Gains Manual

Options: cash-settled options


The treatment of the parties on the exercise of an option is modified where, under the terms of the option, or its exercise, the grantor is required to make a payment to the person exercising it in full or partial settlement of his obligations under the option. In these circumstances TCGA92/S144A applies. See CG12321 and CG12322.

Traded and financial options over the RPI or other financial index can only be cash-settled as there is no underlying asset which can be transferred when the option is exercised. Thus, if a taxpayer acquires a call option over the FTSE 100 index with a strike price of 5,500 and exercises it when the index stands at 5,600, he receives not shares in companies within the FTSE 100 but a payment based upon the difference between the strike price and the index. At £10 per point he would receive £1000.