SDLTM01300 - Scope: What is chargeable

Options and rights of pre-emption FA03/S46

An option to buy land is a binding right granted by a landowner on receipt of a fee giving a prospective buyer an entitlement to purchase up until a specified date in return for a fee.

Pre-emption rights are commonly known as rights of first refusal. On receipt of a fee, a pre- emption right might be granted by a landowner that prevents or restricts the landowner from entering into a land transaction with parties other than those to whom the right is granted.

A charge to stamp duty land tax arises on the acquisition of an option or on the acquisition of a right of pre-emption in respect of land transactions.

Any later exercise of an option or right to pre-emption will give rise to a separate land transaction chargeable to stamp duty land tax in its own right. Although the exercise is a distinct transaction it will be linked to the earlier grant of the option or rights of pre-emption. There is an example of this at SDLTM01300a.

Options fall within stamp duty land tax even if the grantor can discharge his obligation either by entering into a land transaction or in some other way, e.g. payment of money.

At the time of the acquisition of the option or right stamp duty land tax is charged on the option price at the rate applicable to that price. If and when the option or right is subsequently exercised, stamp duty land tax is charged on the consideration then passing plus the option price at the rate applicable to the total consideration/price. At this time, the purchaser is given a credit for any stamp duty land tax paid at the time of the acquisition of the option or right.

The grant of an option is not the acquisition of a major interest.

Accordingly the grant of an option is not notifiable unless there is stamp duty land tax to pay, or there would be tax to pay but for the availability of a relief.

However the fact that the grant of an option is linked with its exercise may mean that by virtue of FA03/S81A the grant becomes notifiable when the option is exercised.