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HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
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Artificial transactions in futures and options: timing rules for options (this guidance applies to disposals of futures and options before 6 April 2013)

Grants of options where related disposals occur later

ITTOIA05/S563 section modifies the rule in section 562 so that a disposal consisting of the grant of an option is treated as taking place at a later time than ITTOIA05/S562 would normally require. The purpose is to allow loss relief arising on the grant of an option to be set against a later profit. There are three conditions that must be satisfied for the rule to apply.

Condition A - there must be a number of related transactions designed to produce a guaranteed return of which one is the grant of an option.

Condition B - at least one of the other transactions should be entered into after the grant.

Condition C - there should be a disposal that is not a grant of an option.

The grant of the option is then deemed to take place at the same time as the next one of the transactions referred to in Condition C takes place. As a result, a loss on the grant of an option will coincide with any profit arising on the later transaction.

TCGA92/S144 (2) and S144A (2) treat grants of options and transactions by the grantor to fulfil his obligations as a single transaction, and achieve the same effect as the timing rule in this section. Where they apply, the TCGA rules take precedence over the rules in Chapter 12, but they only apply to a narrower range of transactions.