STSM113010 - Derivatives: options - stamp implications: issue or grant of an Option

Stamp Duty

Following the decision in George Wimpey & Co Ltd v IRC [1975] 2 All ER 45, where a written instrument issues or grants an equity option, if:

• The option is capable of settlement by way of a transfer of the stock or marketable security per section 122 Stamp Act 1891 (see STSM021040 ) over which it is granted;
• The option itself is a marketable security; and
• Chargeable consideration is paid for the option (see STSM021050, STSM021060 and STSM021070);

then the instrument is within the scope of Stamp Duty, which is calculated by reference to the consideration.

However if the option is only capable of cash settlement then it will be outside the scope of a Stamp Duty charge.

Stamp Duty Reserve Tax (SDRT)

As the issue or granting of an equity option contract represents an agreement to grant rights, rather than an agreement to transfer existing rights in an underlying equity or security, no SDRT charge arises under section 87 Finance Act 1986.

Issue or grant of an option dated prior to 1 December 2003 - land

Stamp Duty Land Tax (SDLT) replaced Stamp Duty on land transactions from 1 December 2003 (see SDLTM).

Where a written instrument dated prior to 1 December 2003 issues or grants an option to purchase land which is capable of settlement by way of a transfer of land and/or buildings and the option is a marketable security, then the instrument is within the scope of Stamp Duty which is calculated by reference to the chargeable consideration paid for the option. This was the case in George Wimpey referred to above, which was concerned with an agreement in writing that granted them an option to purchase land.