The principal real estate for BPR purposes includes shares held in an unlisted (i.e. private) company (including COMPANIEs listed in AIM). A limited company may grant sale and call options for the sale of all shares of a subsidiary to a buyer who is also a limited company; In other words, it is permissible for a parent company to sell a subsidiary of a group by entering into a put and call option contract. “While cross-options are not a binding sales contract, it is important to ensure that options do not exist exactly during the same period. This is because HMRC considers these agreements to be a contract between them. The call option must therefore elapse before the Put option can be exercised. The date of the transfer for the purposes of the CGT is the date on which a contract becomes unconditional. In accordance with Section 28 (2) of the Taxation of Chargeable Gains Act 1992, this may be the date of exchange, the date of exercise of an option, or the date on which each condition depends on the condition on which the sale depends. HMRC accepts in The Capital Gains Manual 14275 that an option is not in itself a conditional contract, but that it acts as an irrevocable offer during the option period. The property (i.e. shares) will not be eligible as an RBP if, at the time of the transfer, it is subject to a binding sales contract (Article 113 IHTA 1984).
This exclusion is intended to ensure that BPR is only available when a transfer involves a commercial participation and not a company`s cash product. A put option therefore provides a safety net for a potential seller by guaranteeing a price for his shares for a limited period of time. HMRC accepts that a sale or purchase option does not in itself constitute a binding contract. It goes without saying that a binding contract can be entered into once an option has been exercised. It is necessary to examine the terms of a particular agreement in order to determine when a binding contract is concluded. The question of whether the selling and calling options should work at the same time or whether one should start with the course of the others is sometimes discussed. Toby Harris and Chris Erwood, “Business and Agricultural Property Relief” (Bloomsbury Professional, 6th Edition, 2014) indicate in paragraph 6.15 that there are several factors to watch out for when selling put options.