Base cost

Capital gains tax treatment of share options

The taxpayer was granted unapproved share options by his employer in 1999 and 2000. He exercised the options in three batches in 2005-06 and on each occasion sold the shares on the same day. The proceeds were paid to him after deducting the exercise price and tax due known as a ‘cashless for cash’ exercise.

He claimed that the transactions had given rise to a loss which he used against chargeable gains in later years.

HMRC refused the loss and the taxpayer appealed.

The first issue before the First-tier Tribunal was whether the options exercised by the taxpayer were cash-settled for the purposes of TCGA 1992 s 144A by virtue of a cash payment made by the employer.

The taxpayer said the employer was permitted to make a cash payment equal to the fair market value of the shares. Section 144A...