This worked example applies the LBTT rates and bands for residential transactions with an effective date prior to 15 July 2020 or after 31 March 2021 and the amount of tax shown is for illustrative purposes only.
On 2 April, A is granted an option by B to buy a house on or before 31 December. A paid B for the grant of the option.
The acquisition of the option by A is a land transaction in its own right. A may:
- have to make a LBTT return to us in relation to the option depending on what was paid for it (because the acquisition of an option is not a major interest in land, it is a notifiable transaction if the chargeable consideration of the acquisition exceeds the nil rate tax band of £145,000); and
- may be liable to pay LBTT (again, if the chargeable consideration is above the nil rate tax band).
A subsequently exercises the option on 1 December.
The exercise of the option by A constitutes a separate land transaction from the grant of the option. The effective date of that land transaction is the date of completion of the sale of the house to A or, if earlier, the date of substantial performance.
If the chargeable consideration is above £40,000, A must make a LBTT return to us in relation to the purchase of the house.
A LBTT return (or further return) is also required in respect of the option, which is linked to the purchase since the buyer and the seller, in relation to both the option and the purchase, are the same.
The final amount of tax payable by A in respect of both the grant of the option and the purchase of the house will be determined by the total consideration given for both the grant of the option and the purchase of the house.