Grant and exercise of option

Grant and exercise of option

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Client grants option to purchase land - grant treated as chargeable disposal. No problem.

Grantee exercises option and grant/sale treated as a single transaction. HMRC say that any tax paid on the grant is repaid or set off. No problem.

Question is - what happens if no tax was paid on the grant (because of use of losses, for instance)?

HMRC manual simply refers to the refund etc of any tax paid and specifically say that no amendment to the self-assessment is made. So it seems that the grant gain could effectively be assessed twice, which clearly doesn't sound right.

However, their manual starts by saying that on exercise the grant ceases to be an occasion of charge. It seems to me therefore that the taxpayer should be entitled to whatever remedy arises as a consequence of disregarding the grant. Either by computing the impact of the losses etc now freed up or, more simply, imputing a notional tax charge in respect of the grant.

Just wondering if anyone has come across this scenario, and if so what the outcome was.

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By User deleted
27th Feb 2014 15:47

My suggestion ...

... would simply be to work out what would have happened had the option never been granted. (And see what the tax effect of freeing up the losses would be - that would be my starting point for discussions with HMRC - given that the legislation doesn't seem to go beyond treating everything as a single transaction, I would suggest that the repayment of tax is just one way of dealing with it.).

I have never seen this in practice, but it can't be unheard of.

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