Taxation of Chargeable Gains Act 1992 section 144

Options and forfeited deposits

Section 144 sets out the capital gains tax treatment of options — how they are taxed when granted, exercised, or abandoned — and extends similar treatment to forfeited deposits on transactions that fall through.

• Granting an option is treated as a disposal of a separate asset (the option itself), not as a part-disposal of the underlying asset, and this applies even where the grantor never owns the underlying asset.
• When an option is exercised, the grant and the resulting transaction are merged into a single transaction: for a call option, the option premium is added to the sale proceeds; for a put option, it is deducted from the grantor's acquisition cost.
• The person exercising an option is not treated as making a disposal of it; instead, the cost of acquiring the option is rolled into the cost of the asset bought (call option) or treated as an incidental cost of the disposal made (put option).
• Abandonment of certain options — quoted options to subscribe for shares, traded options, financial options, and options over trade assets — gives rise to a disposal and therefore a potential allowable loss, but abandonment of any other type of option does not count as a disposal.