HMRC internal manual

Stamp Duty Land Tax Manual

SDLTM01300A - Scope: What is chargeable: Options and rights of pre-emption FA03/S46: Example 1

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On 1 January 2020, P Limited is granted an option by V Limited in return for consideration of £250,000 to buy an office block for £3,000,000 on or before 31 December 2020.  The payment of £250,000 is for the right to buy only. The £3,000,000 would be in addition to the £250,000.

P Limited subsequently exercises the option and complete the purchase on 1 December 2020.

The acquisition of the option by P Limited is a land transaction in its own right. The effective date of that transaction is 1 January 2020 [FA03/S46(3)].  Because the underlying land is non-residential property, the rates applicable to the option are those which apply to non-residential property and the option is liable to tax under Table B.

P Limited must make a land transaction return to HM Revenue & Customs within 14 days of 1 January 2020 and is liable for stamp duty land tax on the £250,000 at the rates applicable to non-residential property on 1 January 2020. 

The transfer pursuant to the exercise of the option by P Limited on 1 December 2020 constitutes a separate land transaction from the grant of the option.  But the two are linked transactions.

In calculating the eventual stamp duty land tax payable by P Limited the total consideration given by the company at the time of the grant and pursuant to the subsequent exercise of the option determines the amounts of the tax that the company must pay for the grant of the option and for the transfer.

On completion of the purchase pursuant to the exercise of the option, the purchase price of £3,000,000 is linked with the option price of £250,000. Question 13 of the land transaction return for the land transfer (question 1.13 on the online return) should show a linked transaction value of £3,250,000.

The SDLT1 for the transfer in pursuance of the exercise of the option should show a consideration of £3,000,000 at question 10 (1.10 online).

The effective date of the land transaction consequent on the exercise of the option is the date of completion of the sale to P Limited or, if earlier, the date of substantial performance.

Under FA03/S81A a further return is required in respect of the option price of £250,000, which is now linked to the purchase price of £3,000,000.

The further return, which should be made by letter to the  Stamp Office, will show a consideration of £250,000. It would be helpful if the original land transaction return number is quoted on the FA03/S81A further return.  Further guidance on calculating tax due on linked transactions can be found by visiting https://www.gov.uk/guidance/sdlt-linked-purchases-or-transfers

The SDLT calculations are as follows:

1.  On the grant of the option on 1 January 2020 for £250,000 the SDLT would be calculated on £250,000 at the non-residential rates applicable on 1 January 2020 and so would be £2,000.

2.  On completion of the transfer on 1 December 2020 SDLT is due on the further £3,000,000 paid at the rates applicable on 1 December 2020, calculated as a proportion of the aggregate consideration.  SDLT on £3,250,000 would be £152,000.  The amount due on completion is £3,000,000 / £3,250,000 x £152,000.  This comes to £140,308.

3.  On completion of the transfer further SDLT is due on the option fee of £250,000.  This is calculated the same way as above but based on the rates applicable at the grant of the option, on 1 January 2020.  The SDLT is £250,000 / £3,250,000 x £152,000This comes to £11,692.  As £2,000 has been paid already, the top up due is £9,692.