C2.1008ZA Application of market value rule in case of exercise of option
Mansworth v Jelley
As indicated in C2.109, the HMRC view that the market value rule did not normally apply to shares acquired as a result of the exercise of an option was rejected by the Court of Appeal in the case of Mansworth v Jelley1. In that case, the taxpayer was non-resident in the eight tax years up to 1987–88. While working for subsidiaries abroad, he was granted options over shares in the parent company in 1983, 1984 and 1985, exercisable at their market value on the New York Stock Exchange at the time of the grant. He exercised the options and was assessed to capital gains tax on the gains arising from the disposals of the option shares.
The basis of the assessments, under CGTA 1979, ss 29A(1), 137(3) (now re-enacted in TCGA 1992, ss 17, 144(3); see C2.109, C2.1008 respectively) was that the base value was the sum of the price paid for the shares on exercise of the options and the market value of the options when originally granted, which was treated as nil. The taxpayer argued that the acquisition of the option and the acquisition of the shares was a single transaction to be treated as acquired for their market value; and because he had disposed of the option shares on the same day as he acquired them, or within a few days, there was no gain upon which he could be assessed to tax.
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