IHTM09777 - Restrictions on the freedom to dispose of assets: option to purchase is exercised

The example below shows how to calculate the value transferred when an option is taken up.

Example

In 1990, Adam grants Barry an option to purchase Blackacre for 拢20,000 in 6 years. The gift of the option is valued at 拢16,000, for which Barry pays 拢4,000.

When the option is exercised Blackacre is worth 拢50,000.

The value transferred is calculated as follows:

Open market value = 拢50,000

Less option price -拢20,000

Net value = 拢30,000

Allow proportionate allowance (IHTM09774) (拢4,000 梅 拢16,000) 脳 拢30,000 = 拢7,500

拢30,000 - 拢7,500 = 拢22,500

Less value chargeable when option granted (IHTM09775) -拢12,000

Value transferred = 拢10,500