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Abandonment of an option

The abandonment of an option by the person entitled to exercise it does not constitute a disposal by that person¹ (save in the excepted cases mentioned below), and, accordingly, the consideration or deposit lost by the grantee does not give rise to any allowable loss.

There is, however, still a disposal by the grantee if they receive a capital sum for abandoning the option; in this case the disposal is by virtue of the receipt of the capital sum (see C1.319) ² and not the abandonment of the option.

Example 1

Y pays X £500 for an option to buy an asset from X for £15,000 within the next two years. Y subsequently abandons the option. There is no disposal of an asset for Y and therefore no allowable loss for the £500 paid but X has received a capital sum derived from an asset (ie the option) and will have a capital gain of £500 assuming no incidental costs.

This principle was illustrated in Kaufman³ where