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HMRC internal manual

Stamp Duty Land Tax Manual

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

Example 1

On 1 January 2018, Mr. Smith is granted an option by Mrs. Jones to buy her house for £200,000 on or before 31 December 2018.

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

Mr. Smith subsequently exercises the option on 1 December 2018.

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 2018, FA03/S46(3).

Mr. Smith must make a land transaction return to HM Revenue & Customs by 31 January 2018 and is liable for stamp duty land tax 

The exercise of the option by Mr. Smith on 1 December 2018 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 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. Question 13 of the land transaction return (question 1.13 on the online 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 (1.10 online).

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.

The further return, which should be made by letter to the  Stamp Office, will show a consideration of £150,000. It would be helpful if the original land transaction return number is quoted on the FA03/S81A further return. Further guidance on calculation tax due on linked transactions can be found by visiting http://at https://www.gov.uk/guidance/sdlt-linked-purchases-or-transfers

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Example 2

On 1 January 2018, Mr. Smith is granted an option by Mrs. Jones to buy her house for £200,000 on or before 31 December 2018.

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

Mr. Smith subsequently exercises the option on 1 December 2018.

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 2018 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 (1.10 online)
  • The £270,000 linked value at question 13 (1.13 online)
  • Tax at question 14 (1.14 online)

 

  • 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. 

The return for the exercise of the option will show

  • the £200,000 consideration at question 10 (1.10 online)
  • The £270,000 linked value at question 13 (1.13 online)

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.