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HMRC internal manual

Stamp Duty Land Tax Manual

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HM Revenue & Customs
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Scope: What is chargeable: Options and rights of pre-emption FA03/S46: Examples

Example 1

On 1 January 2005, Mr. Smith is granted an option by Mrs. Jones to buy her house for £200,000 on or before 31 December 2005.

Mr. Smith paid Mrs. Jones £150,000 for the grant of the option.

Mr. Smith subsequently exercises the option on 1 December 2005.

The acquisition of the option by Mr. Smith is a land transaction in its own right. The effective date of that transaction is 1 January 2005, FA03/S46(3).

Mr. Smith must make a land transaction return to HM Revenue & Customs by 31 January 2005 and is liable for stamp duty land tax at the rate of 1% of £150,000, £1500.

The exercise of the option by Mr. Smith on 1 December 2005 constitutes a separate land transaction from the grant of the option.

In calculating the stamp duty land tax payable by Mr. Smith the total consideration given by him at the time of the grant and the subsequent exercise of the option determines the applicable rate of stamp duty land tax and the amount of the tax that he must pay.

On exercise the purchase price of £200,000 is linked with the option price of £150,000 so that the applicable rate of stamp duty land tax is 3%. Question 13 of the land transaction return should show a linked transaction value of £350,000.

The SDLT1 on the exercise of the option should show a consideration of £200,000 at question 10 and tax payable of £6000 at question 14.

The effective date of the land transaction constituted by the exercise of the option is the date of completion of the sale of the house to Mr. Smith or, if earlier, the date of substantial performance.

Under FA03/S81A a further return is required in respect of the option price of £150,000, which is now linked to the purchase price of £200,000, so that once again the applicable rate is 3%.

The further return, which should be made by letter to the Birmingham Stamp Office, will show a consideration of £150,000 and tax of £3000 (£4500 less £1500 already paid). It would be helpful if the original land transaction return number is quoted on the FA03/S81A further return.

Example 2

On 1 January 2005, Mr. Smith is granted an option by Mrs. Jones to buy her house for £200,000 on or before 31 December 2005.

Mr. Smith paid Mrs. Jones £70,000 for the grant of the option.

Mr. Smith subsequently exercises the option on 1 December 2005.

Although the purchase of the option by Mr. Smith is a land transaction in its own right it is not regarded to be the acquisition of a major interest in the land. As the consideration is below the 1% threshold for stamp duty land tax a land transaction return is not required on the grant of the option.

The exercise of the option by Mr. Smith on 1 December 2005 constitutes a separate land transaction from the grant of the option.

Once the option is exercised Mr Smith must lodge two land transaction returns, one for the grant of the option under FA03/S81A and one for the exercise of the option under FA03/S76.

The return for the grant of the option will show

  • the £70,000 option fee at question 10
  • The £270,000 linked value at question 13
  • £2100 tax (at the rate of 3%) at question 14

  • The effective date of this land transaction is the date of the grant of the option, however it only requires notification within 30 days of the competition of sale of the house to Mr Smith. This return should be sent to Birmingham Stamp Office. The return for the exercise of the option will show

  • the £200,000 consideration at question 10
  • The £270,000 linked value at question 13
  • £6000 tax (at the rate of 3%) at question 14

The effective date of both of these the land transactions is the date of completion of the sale of the house to Mr. Smith or, if earlier, the date of substantial performance.