What is the treatment of the option monies?

The transfer of land subject to an option - is the CGT paid on the option money refundable?

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I have a situation where a trust has paid CGT on the proceeds received on the grant of an option to a developer to buy land.

The terms of the trust have directed that the life tenant has become absolutely entitled to the land (at age 30). The trust has therefore made a deemed disposal (but the option remains unexercised). However, the trustees are entitled to holdover relief. How should the CGT paid on the option money be dealt with?

Presunably, the trustees get the CGT back once the option is excerised and it follows that the beneficiary must add the option money to the eventual sale proceeds in accordance with s144 TCGA 1992? Two two elements of the proceeds would normally be treated as a single transaction but here we are dealing with different parties so I'm wondering whether this alters the position.

 

 

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By michaelblake
22nd Feb 2017 15:20

The wording of TCGA 1992 Section 144(2) notes that the person who grants the option and the person exercising it have to be the same. Viz:

144(2) If an option is exercised, the grant of the option and the transaction entered into by the grantor in fulfilment of his obligations under the option shall be treated as a single transaction and accordingly–

(a)if the option binds the grantor to sell, the consideration for the option is part of the consideration for the sale ....

I have no experience of the situation that you describe and do not know whether HMRC would be prepared to stretch a point to give relief in the circumstances that you describe. You could always write to one of HMRC's CGT specialist teams and ask them.

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Galaxian
By Galaxian
22nd Feb 2017 15:51

It therefore looks like the trust is stuck with the CGT liability and the beneficiary excludes the option money upon exercise.....

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