Mr Bluck was granted options over shares in his employing company in each of the years 1992, 1993, and 1994. In 1995 Mr Bluck was made redundant, but as part of the termination agreement he was allowed to keep his options.
In 1995 Mr Bluck transferred half of the option to his wife as a birthday present. In January 1997 he received a payment of £10,102 for the cancellation of the options.
Mr Bluck contended that the option gain should not be charged to tax.
Firstly, Mr Bluck suggested that the receipt of the option was part of the termination arrangements, and that relief should therefore be given on the first £30,000 under section 188. However, it was confirmed by the Special Commissioner that the relief under section 188 only applies to sums chargeable under section 148. Section 148 only applies where the sum is "not otherwise chargeable to tax". The sum in question was chargeable under section 135 rather than section 148 and therefore no exemption under section 188 applied.
It was held that the transfer of half of the option to Mr Bluck's wife did not make any difference to the liability. Mr Bluck remained liable in respect of the gain made by his wife.
It was also held that the fact that the receipt arose after the employment had ceased did not affect the liability.
The options had not lapsed before the payment was made, but rather the payment was made to secure their cancellation. In those circumstances the amount was taxed under section 135.
Please note that the legislation has been changed by Finance Act 2003. The distinction between compensation for the loss of an option, and consideration for the termination of an option no longer applies, and payments of compensation that relate to options that have already lapsed can also now be taxed under Chapter 5, Part 7 Income Tax (Earnings & Pensions) Act 2003. (ITEPA 2003).
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