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HMRC internal manual

Capital Gains Manual

Options: cash-settled options: treatment of person exercising the option

TCGA92/S144A (3), TCGA92/S144A (4)

Where an option is cash-settled, the person who exercises the option and receives the payment is treated as having disposed of an asset (namely, the right to receive the payment) and the payment received is treated as consideration for the disposal.

The disposal of the right to receive payment and the acquisition of the option are treated as a single transaction, and the costs of acquiring the option are treated as costs of acquisition to be deducted from the disposal consideration, under TCGA92/S38 (1)(a).


The facts are as in the example in CG12321: S pays £20,000 to acquire an option and on exercise receives £30,000.

A chargeable gain accrues to S when the option is exercised:

Consideration treated as received for disposal of entitlement to payment £30,000
less Expenditure treated as allowable acquisition expenditure £20,000
Chargeable gain £10,000

TCGA92/S144A also applies to options where there is a partial cash settlement. In such cases the section applies to the part of the option that is cash-settled. TCGA92/S144 (3) (see CG12314) applies to the remainder. Sums received or paid are apportioned on a just and reasonable basis.

For the computation of indexation allowance (if any) on the disposal, see CG12315.