IHTM09777 - Restrictions on the freedom to dispose of assets: option to purchase is exercised
»Ê¹ÚÌåÓýapp 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 £20,000 in 6 years. »Ê¹ÚÌåÓýapp gift of the option is valued at £16,000, for which Barry pays £4,000.
When the option is exercised Blackacre is worth £50,000.
»Ê¹ÚÌåÓýapp value transferred is calculated as follows:
Open market value = £50,000
Less option price -£20,000
Net value = £30,000
Allow proportionate allowance (IHTM09774) (£4,000 ÷ £16,000) × £30,000 = £7,500
£30,000 - £7,500 = £22,500
Less value chargeable when option granted (IHTM09775) -£12,000
Value transferred = £10,500