Commentary

C2.1008 Exercise of option—treatment of grantee

Capital gains tax
Capital gains tax | Commentary

C2.1008 Exercise of option—treatment of grantee

Capital gains tax | Commentary

C2.1008 Exercise of option—treatment of grantee

The exercise of an option does not constitute a disposal of the option; the acquisition of the option and its exercise are treated as a single transaction. Thus, in the case of a 'put' option (see below) the exercise will involve a disposal of the asset concerned1.

If the option binds the grantor of the option to sell (a 'call' option), the cost to the grantee of its acquisition is part of the cost which is added to the grantee's cost of acquiring the asset in respect of which the option was granted2. Although the option would have been a wasting asset in relation to a disposal of the option, the full cost of the option is added to the cost of acquiring the asset, without any write-down.

For the purposes of the indexation allowance (where relevant3) where the grantee disposes of the asset after 5 April 1982 (or 31 March 1982 if the grantee is a company), the option cost and the cost of the asset itself must be treated as separate items of expenditure. The option cost is treated as having been incurred when the option was acquired4.

Example 1

In July 2016, J Ltd purchased an option for £20,000,

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