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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Restrictions on the freedom to dispose of assets: option to purchase is exercised

The example below shows how to calculate the value transferred when an option is taken up


In 1990, A grants B an option to purchase Blackacre for £20,000 in 6 years. The gift of the option is valued at £16,000, for which B pays £4,000.

When the option is exercised Blackacre is worth £50,000.

The value transferred is calculated as follows


The open market value is £50,000, less the option price of £20,000 = £30,000.

Allow proportionate allowance (IHTM09774)


(£4,000 ÷ £16,000) × £30,000 = £22,500

Less value chargeable when option granted (IHTM09775)  of £12,000. The value transferred = £10,500