Corporation Tax Act 2009 section 667

Shares acquired on exercise of non-embedded option

Section 667 adjusts the allowable acquisition costs for chargeable gains purposes when a company acquires shares by exercising rights under a plain vanilla option that is a derivative contract.

• When a company exercises a plain vanilla option (a standalone derivative contract) to acquire shares, the chargeable gains acquisition cost of those shares is adjusted to reverse the derivative contract credits and debits already recognised
• If total credits (G) exceed total debits (L), the allowable acquisition cost is increased by the difference; if debits exceed credits, the acquisition cost is reduced accordingly
• Where the required reduction exceeds the available acquisition cost, the surplus is added to the disposal consideration for the shares instead
• If only some of the acquired shares are disposed of, the standard part disposal apportionment rules apply to split the adjusted acquisition cost between the shares sold and those retained