Too literal

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.

He claimed that the transactions had given rise to a loss which he used against chargeable gains in later years. HMRC refused the loss. The First-tier Tribunal dismissed the taxpayer’s appeal.

The issue for the Upper Tribunal was whether TCGA 1992 s 144ZA applied to the exercise of the options. The taxpayer said the First-tier Tribunal had been wrong to say it disapplied the market value in determining the taxpayer’s base cost and there was no allowable loss after the exercise.

Counsel for the taxpayer argued that because the employer had a discretion...