Example 1
On 1 January 2005, Mr. Smith is granted an option by Mrs.
Jones to buy her house for £200,000 on or before 31 December
2005.
Mr. Smith paid Mrs. Jones £150,000 for the grant of the
option.
Mr. Smith subsequently exercises the option on 1 December
2005.
The acquisition of the option by Mr. Smith is a land
transaction in its own right. The effective date of that
transaction is 1 January 2005, FA03/S46(3).
Mr. Smith must make a land transaction return to HM Revenue
& Customs by 31 January 2005 and is liable for stamp duty land
tax at the rate of 1% of £150,000, £1500.
The exercise of the option by Mr. Smith on 1 December 2005
constitutes a separate land transaction from the grant of the
option.
In calculating the stamp duty land tax payable by Mr. Smith
the total consideration given by him at the time of the grant and
the subsequent exercise of the option determines the applicable
rate of stamp duty land tax and the amount of the tax that he must
pay.
On exercise the purchase price of £200,000 is linked
with the option price of £150,000 so that the applicable rate
of stamp duty land tax is 3%. Question 13 of the land transaction
return should show a linked transaction value of £350,000.
The SDLT1 on the exercise of the option should show a
consideration of £200,000 at question 10 and tax payable of
£6000 at question 14.
The effective date of the land transaction constituted by the
exercise of the option is the date of completion of the sale of the
house to Mr. Smith or, if earlier, the date of substantial
performance.
Under FA03/S81A a further return is required in respect of
the option price of £150,000, which is now linked to the
purchase price of £200,000, so that once again the applicable
rate is 3%.
The further return, which should be made by letter to the
Birmingham Stamp Office, will show a consideration of £150,000
and tax of £3000 (£4500 less £1500 already paid). It
would be helpful if the original land transaction return number is
quoted on the FA03/S81A further return.
Example 2
On 1 January 2005, Mr. Smith is granted an option by Mrs.
Jones to buy her house for £200,000 on or before 31 December
2005.
Mr. Smith paid Mrs. Jones £70,000 for the grant of the
option.
Mr. Smith subsequently exercises the option on 1 December
2005.
Although the purchase of the option by Mr. Smith is a land
transaction in its own right it is not regarded to be the
acquisition of a major interest in the land. As the consideration
is below the 1% threshold for stamp duty land tax a land
transaction return is not required on the grant of the option.
The exercise of the option by Mr. Smith on 1 December 2005
constitutes a separate land transaction from the grant of the
option.
Once the option is exercised Mr Smith must lodge two land
transaction returns, one for the grant of the option under
FA03/S81A and one for the exercise of the option under FA03/S76.
The return for the grant of the option will show
The return for the exercise of the option will show
The effective date of both of these the land transactions is the date of completion of the sale of the house to Mr. Smith or, if earlier, the date of substantial performance.
