Taxation of Chargeable Gains Act 1992, section 144

Options and forfeited deposits

Part IV Shares, securities, options etc.

(1)Without prejudice to section 21, the grant of an option, and in particular—

(a)the grant of an option in a case where the grantor binds himself to sell what he does not own, and because the option is abandoned, never has occasion to own, and

(b)the grant of an option in a case where the grantor binds himself to buy what, because the option is abandoned, he does not acquire,

is the disposal of an asset (namely of the option), but subject to the following provisions of this section as to treating the grant of an option as part of a larger transaction.

(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, and

(b)if the option binds the grantor to buy, the consideration for the option shall be deducted from the cost of acquisition incurred by the grantor in buying in pursuance of his obligations under the option.

(3)The exercise of an option by the person for the time being entitled to exercise it shall not constitute the disposal of an asset by that person, but, if an option is exercised then the acquisition of the option (whether directly from the grantor or not) and the transaction entered into by the person exercising the option in exercise of his rights under the option shall be treated as a single transaction and accordingly—

(a)if the option binds the grantor to sell, the cost of acquiring the option shall be part of the cost of acquiring what is sold, and

(b)if the option binds the grantor to buy, the cost of the option shall be treated as a cost incidental to the disposal of what is bought by the grantor of the option.

(4)The abandonment of—

(a)a quoted option to subscribe for shares in a company, or

(b)a traded option or financial option, or

(c)an option to acquire assets exercisable by a person intending to use them, if acquired, for the purpose of a trade carried on by him,

shall constitute the disposal of an asset (namely of the option); but the abandonment of any other option by the person for the time being entitled to exercise it shall not constitute the disposal of an asset by that person.

(5)This section shall apply in relation to an option binding the grantor both to sell and to buy as if it were 2 separate options with half the consideration attributed to each.

(6)In this section references to an option include references to an option binding the grantor to grant a lease for a premium, or enter into any other transaction which is not a sale, and references to buying and selling in pursuance of an option shall be construed accordingly.

(7)This section shall apply in relation to a forfeited deposit of purchase money or other consideration money for a prospective purchase or other transaction which is abandoned as it applies in relation to the consideration for an option which binds the grantor to sell and which is not exercised.

(8)In subsection (4) above and sections 146 and 147—

(a) “quoted option” means an option which, at the time of the abandonment or other disposal, is [F875 listed on F875] a recognised stock exchange;

(b) “traded option” means an option which, at the time of the abandonment or other disposal, is [F876 listed F876] on a recognised stock exchange or a recognised futures exchange; and

(c) “financial option” means an option which is not a traded option, as defined in paragraph (b) above, but which, subject to subsection (9) below—

(i)relates to currency, shares, securities or an interest rate and is granted (otherwise than as agent) by a member of a recognised stock exchange, by an [F877authorised person within the meaning given by section 143(8)F877] ; or

(ii)relates to shares or securities which are dealt in on a recognised stock exchange and is granted by a member of such an exchange, acting as agent; or

(iii)F878,F878relates to currency, shares, securities or an interest rate and is granted to such an authorised person ... as is referred to in sub-paragraph (i) above and concurrently and in association with an option falling within that sub-paragraph which is granted by that authorised person ... to the grantor of the first-mentioned option; or

(iv)relates to shares or securities which are dealt in on a recognised stock exchange and is granted to a member of such an exchange, including such a member acting as agent.

(9) If the Treasury by order so provide, an option of a description specified in the order shall be taken to be within the definition of “financial option" in subsection (8)(c) above.

Definitions used in section 144 12

the option

(a) a share option (“the option”) has been granted to an individual—

(i) in accordance with the provisions of a Schedule 4 CSOP scheme, and

(ii) by reason of the individual’s office or employment as a director or employee of a company, and

(b) shares (“the relevant shares”) are acquired by the exercise of the option.

Defined in Sch.7D para.11(3) · see it in the full Act
assets

(a) the reference to “assets” were a reference to “property”, and

Defined in Sch.4ZA para.22(2) · see it in the full Act
asset

In this sub-paragraph “asset” includes part of an asset.

Defined in Sch.8B para.6(1) · see it in the full Act
shares

“shares” includes stock;

Defined in s.288(1) · see it in the full Act

(5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.

Defined in Sch.7AC para.10(5) · see it in the full Act

(b) “shares” includes securities,

Defined in Sch.7 para.4(2) · see it in the full Act
the shares

(5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).

Defined in Sch.7ZB para.1(5) · see it in the full Act

(a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and

Defined in Sch.5B para.13(12) · see it in the full Act
company

“company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99 ;

Defined in s.288(1) · see it in the full Act

(5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).

Defined in Sch.2 para.5(5) · see it in the full Act
trade

“trade” has the same meaning as in the Income Tax Acts;

Defined in s.288(1) · see it in the full Act

(b) “trade”, “profession” and “vocation” have the same meaning as in the Income Tax Acts.

Defined in s.165(8) · see it in the full Act

(9) In this section and Schedule 7 and in determining whether a company is a trading company for the purposes of this section and that Schedule, the expression “trade” shall be taken to include the occupation of woodlands where the woodlands are managed by the occupier on a commercial basis and with a view to the realisation of profits.

Defined in s.165(9) · see it in the full Act
lease

10 (1) In this Act, unless the context otherwise requires “lease” —

(a) in relation to land, includes an underlease, sublease or any tenancy or licence, and any agreement for a lease, underlease, sublease or tenancy or licence and, in the case of land outside the United Kingdom, any interest corresponding to a lease as so defined,

(b) in relation to any description of property other than land, means any kind of agreement or arrangement under which payments are made for the use of, or otherwise in respect of, property,

Defined in Sch.8 para.10(1) · see it in the full Act
premium

(3) In the application of this Schedule to Scotland “premium” includes in particular a grassum payable to any landlord or intermediate landlord on the creation of a sublease.

Defined in Sch.8 para.10(3) · see it in the full Act
recognised stock exchange

“recognised stock exchange” has the meaning given by section 1005 of ITA 2007 ;

Defined in s.288(1) · see it in the full Act
recognised futures exchange

(6) In this Act “recognised futures exchange” means the London International Financial Futures Exchange and any other futures exchange which is for the time being designated for the purposes of this Act by order made by the Board.

Defined in s.288(6) · see it in the full Act
securities

(6) In sub-paragraph (4)(d) “securities” has the same meaning as in section 132.

Defined in Sch.4B para.12(6) · see it in the full Act

(2) In sub-paragraph (1)(a) “securities” has the same meaning as in section 132.

Defined in Sch.4B para.7(2) · see it in the full Act

Cases considering section 144 3

The Trustees of the Morrison 2002 Maintenance Trust & Ors v Revenue And Customs

[2019] EWCA Civ 93 · 6 February 2019Limits

The statutory treatment of an option grant or acquisition and its exercise as a single transaction did not preclude analysing exercise plus onward sale as a disposal; section 144 was not determinative. (see paras [21]; [35]-[38])

Schofield v HM Revenue and Customs

[2012] EWCA Civ 927 · 11 July 2012Limits

The court acknowledged that granting an option is ordinarily the disposal of an asset, subject to the statutory provisions treating it as part of a larger transaction. That classification did not prevent the court from identifying the composite scheme as the relevant transaction (see paras [12]; [21]; [36]). Cited only. Cited only. Cited only. The court identified the options as financial options within the statutory definition. This supported the statutory analysis but did not alter the conclusion that the transactions had to be viewed as a composite scheme (see para [12]).

Stephen Davies v The Commissioners for HMRC

[2018] UKUT 130 (TCC) · 30 April 2018Interprets

Section 144(2) formed part of the single-transaction condition in section 144ZA(1). The Tribunal rejected a construction that would leave its stated consequences inapplicable where a grantor had discretion over the method of performance. (see paras [17]; [20]-[21]) Section 144(3) was treated, with section 144(2), as part of the single-transaction condition incorporated by section 144ZA(1). It helped identify the two statutory categories into which options fall. (see para [17]) Where an option combines elements of both statutory option categories, section 144(5) treats it as two separate options. The Tribunal relied on this provision, as incorporated into section 144ZA, when explaining the exhaustive operation of subsections (2) and (3). (see para [17]) The extended meanings of buying and selling include the grant of a lease or another transaction that is not a sale. Applied through section 144ZA(5), that extension meant that the grantor’s discretion to perform by shares or cash did not exclude the option from section 144ZA. (see paras [16]-[17]; [20]-[21])

What each judgment says about section 144 is in the case-law panel in the full Act.

Amendments and notes

9 notes from legislation.gov.uk

Amendments

  1. F875Words in s. 144(8)(a) substituted (19.7.2007) by Finance Act 2007 (c. 11), Sch. 26 para. 8(3)
  2. F876Word in s. 144(8)(b) substituted (with effect in accordance with Sch. 38 para. 10(3) of the amending Act) by Finance Act 1996 (c. 8), Sch. 38 para. 10(2)(a)
  3. F877Words in s. 144(8)(c)(i) substituted (1.12.2001) by The Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (S.I. 2001/3629), arts. 1(2)(a), 65(a)
  4. F878Words in s. 144(8)(c)(iii) omitted (1.12.2001) by virtue of The Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (S.I. 2001/3629), arts. 1(2)(a), 65(b)

Modifications

  1. C250S. 144 extended (27.7.1993) by 1993 c. 37, s. 12, Sch. 2 Pt. I para. 26(2)
  2. C251S. 144 modified (19.9.1994) by Coal industry Act 1994 (c. 21), s. 68(4), Sch. 4 para. 6(1)(2) (with Sch. 4 paras. 6(4), 14); S.I. 1994/2189, art. 2, Sch.
  3. C252S. 144 applied (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), ss. 562(1), 883(1) (with s. 563, Sch. 2)
  4. C253S. 144(2) applied (with effect in accordance with s. 1329(1) of the affecting Act) by Corporation Tax Act 2009 (c. 4), ss. 653(2), 1329(1) (with Pts. 1, 2, Sch. 2 para. 94)
  5. C254S. 144(2) excluded (12.2.2019) by Finance Act 2019 (c. 1), Sch. 2 para. 13(2)