Ironic Options

TAXATION OF CHARGEABLE Gains Act 1992 section 144ZA was introduced by the FA 2003 to counteract the problems which had arisen as a result of Mansworth v Jelley [2003] STC 53. There is a delightful degree of irony here which deserves some explanation.

Mansworth v Jelley was all about the value at which option shares were acquired for capital gains tax purposes. Was it the amount actually paid for the shares under the option or was it the market value of the shares at the time the option was exercised? The Court of Appeal decided that the acquisition value was the market value of the shares at the time the option was exercised.

The twist

However there was a twist. It was not simply a matter of replacing the amount paid for the option by the market value; the amount on which income tax is charged on the...