Taxation of Chargeable Gains Act 1992 section 144ZA

Application of market value rule in case of exercise of option

Section 144ZA restricts the application of the market value rule when an option is exercised, so that the exercise price (rather than market value) is generally used for the transaction resulting from the exercise, while the market value rule can still apply to the option itself.

• When an option is exercised, the grant or acquisition of the option and the resulting transaction are treated as a single transaction, but the market value rule is disapplied for the sale or purchase price on exercise — the actual exercise price is used instead.
• The market value rule can still apply to the option element — that is, the consideration given or received for the grant or acquisition of the option itself, whether obtained directly from the grantor or from a previous holder.
• The "exercise price" is defined as the consideration receivable (for a put option) or payable (for a call option) on exercise, and specifically excludes any amount paid to acquire the option.
• Where the market value rule is disapplied by this section, the exercise price is used in its place, subject to a possible adjustment under section 119A for employment-related securities where income tax has been charged.