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HMRC internal manual

Capital Gains Manual

Options: example: call option

In consideration of a payment by A to B of £100, B grants to A an option to buy a chargeable asset from him within two years for £15,000

  • If B did not incur any allowable expenditure in granting the option he has a chargeable gain of £100 from the disposal of the option. This is assessable for the year in which the option was granted.
  • If A abandons the option there is no loss relief to him and B remains liable on a chargeable gain of £100.
  • If A exercises the option his cost of acquiring the asset is £15,000 + £100 = £15,100 and the same figure is used in calculating B’s chargeable gain for the year in which the option is exercised and the asset sold to A. If B has already been assessed on the £100 gain from the disposal of the option itself any tax charged in respect of that disposal should be discharged, and, if the tax has been paid, it should be set-off or repaid, see SAM12351+.
  • If A surrenders the option back to B for £150 so that it is extinguished, he has abandoned the option. This is not to be treated as the disposal of the option. But A has derived a capital sum from the asset and therefore the resulting gain on this deemed disposal (after applying the wasting asset provisions, if appropriate) is assessable, CG12340.