Taxation of Chargeable Gains Act 1992 section 144A

Cash-settled options

Section 144A sets out the capital gains tax treatment that applies when an option is exercised and settled by a cash payment rather than by the delivery of an underlying asset.

• When an option is settled in cash, the grantor is treated as disposing of an asset (the liability to pay) and the cash payment is an incidental cost of that disposal, with the original option premium being the disposal consideration.
• The person exercising the option is treated as disposing of an asset (the right to receive the payment), with the cash received as disposal consideration and the cost of acquiring the option as an allowable deduction.
• Where an option is only partly settled in cash, both the cash-settlement rules and the normal option exercise rules apply, each to their respective portion of the option on a just and reasonable basis.
• For indexation allowance purposes, the cost of the option is treated as incurred at the date the option was originally acquired, not at the date of exercise.