Example of Stamp Duty Land Tax on Options and Pre-emption Rights

SDLT on a Paid Option to Buy Land

Paying for an option to buy land is a separate land transaction for SDLT purposes, and SDLT is usually due on the option fee when the option is granted. If the option is later exercised, the property purchase is taxed separately, but the option and the purchase are treated as linked transactions, so SDLT must be recalculated by reference to the total of the option fee and the purchase price.

• The grant of a paid option is not ignored for SDLT: it is its own land transaction with its own effective date and filing deadline.
• If the option is exercised, the later transfer of the land is a separate transaction, but it is linked with the earlier option grant.
• For linked transactions, SDLT is worked out on the total consideration across both transactions, not on each payment separately.
• This can mean extra SDLT is due on the option fee, even if SDLT was already paid when the option was first granted, so a further return may be needed.
• In HMRC’s non-residential example, a £250,000 option fee plus a £3,000,000 purchase price gave total linked consideration of £3,250,000, leading to an extra SDLT payment on the option transaction.
• Care is needed to distinguish between the purchase price for the transfer itself and the higher linked transaction value used for the SDLT recalculation.

Scroll down for the full analysis.

SDLT on an option to buy land: how the option fee and purchase price are taxed

This page explains how SDLT works where someone pays for an option to buy land and later exercises that option. The key point is that the grant of the option is itself a land transaction, and the later purchase of the property is a separate land transaction. Even so, the two transactions are linked, which affects how much SDLT is ultimately due.

What this rule is about

An option to buy land is a right to require the seller to sell the property on agreed terms if the buyer chooses to exercise the option. In SDLT terms, paying for that right is not ignored. It is treated as consideration for a separate land transaction.

If the option is later exercised, the actual transfer of the land is taxed separately. However, the option fee and the purchase price are then treated as linked transactions. That matters because SDLT on linked transactions is worked out by looking at the total consideration across the linked transactions, not each amount in isolation.

This can produce a further SDLT charge on the option fee, even if SDLT was already paid when the option was first granted.

What the official source says

HMRC’s example concerns a non-residential property. On 1 January 2020, P Limited pays V Limited £250,000 for an option to buy an office block for a further £3,000,000 by 31 December 2020. The £250,000 is paid only for the right to buy. If the option is exercised, the £3,000,000 is payable in addition.

HMRC says:

• the grant of the option on 1 January 2020 is a land transaction in its own right;
• the effective date of that transaction is 1 January 2020;
• because the underlying property is non-residential, the non-residential SDLT rates apply to the option;
• a land transaction return must be filed within 14 days of that date, and SDLT is payable on the £250,000 option fee;
• when the option is exercised and the property is transferred on 1 December 2020, that transfer is a separate land transaction;
• the option grant and the later transfer are linked transactions;
• the total consideration for linked transaction purposes is £3,250,000, being the £250,000 option fee plus the £3,000,000 purchase price;
• a further return is required under FA 2003 section 81A in relation to the option fee, because it now has to be recalculated on the linked basis.

HMRC’s example then shows how the SDLT is apportioned across the two linked transactions by reference to the total SDLT that would be due on the aggregate consideration of £3,250,000.

What this means in practice

The practical effect is that there are two SDLT stages.

First, when the option is granted, the buyer must usually file and pay SDLT on the option fee alone. That is not deferred just because the land has not yet been bought.

Second, if the option is exercised, the later transfer is taxed as a separate transaction, but both transactions must then be recalculated as linked. The SDLT on the total consideration is apportioned between:

• the purchase price transaction, using the rates in force on the effective date of the transfer; and
• the option fee transaction, using the rates in force on the effective date of the option grant.

If the amount already paid on the option fee is less than the amount produced by the linked-transactions calculation, a top-up becomes due.

So the option fee is not taxed twice in a simple sense, but it may need to be revisited once the option is exercised because the linked transaction rules change the overall rate calculation.

How to analyse it

A sensible way to analyse this kind of case is to ask the following questions.

• Is there a genuine option or right of pre-emption over land, and has consideration been paid for that right?
• What is the underlying property for SDLT purposes: residential, non-residential, or mixed? The source material here deals with non-residential property.
• What is the effective date of the option grant? SDLT on the option fee is tested at that date.
• Has the option later been exercised, creating a separate land transaction for the transfer of the property?
• Are the option grant and the later transfer linked transactions? HMRC’s example says they are.
• What is the total consideration across both transactions?
• What SDLT would be due on that total consideration?
• How should that total SDLT be apportioned between the option transaction and the transfer transaction?
• Has a further return under section 81A become necessary for the option transaction?

In return-completion terms, HMRC’s example says that the land transfer return should show:

• the purchase price alone as the consideration for the transfer; and
• the combined amount of the option fee and purchase price as the linked transaction value.

HMRC also says the section 81A further return for the option fee should be made by letter to the Stamp Office, and it is helpful to quote the original return number.

Example

Illustration based on HMRC’s example.

P Limited pays £250,000 on 1 January 2020 for an option to buy an office block. If it chooses to buy, it must pay a further £3,000,000. It exercises the option and completes the purchase on 1 December 2020.

Stage 1: grant of the option

• The option grant is a land transaction.
• The effective date is 1 January 2020.
• SDLT is calculated on £250,000 using the non-residential rates in force on that date.
• HMRC’s example gives SDLT of £2,000.

Stage 2: exercise of the option and transfer of the land

• The transfer on 1 December 2020 is a separate land transaction.
• The transfer and the original option are linked transactions.
• Total linked consideration is £3,250,000.
• HMRC’s example says SDLT on £3,250,000 is £152,000.

HMRC then apportions that £152,000 between the two linked transactions.

• For the transfer: £3,000,000 ÷ £3,250,000 × £152,000 = £140,308
• For the option fee: £250,000 ÷ £3,250,000 × £152,000 = £11,692

Because £2,000 was already paid on the option fee when the option was granted, the additional SDLT due on that option transaction is £9,692.

Why this can be difficult in practice

The main difficulty is that the SDLT position changes over time.

At the date the option is granted, the buyer may think only about SDLT on the option fee. But if the option is later exercised, that is not the end of the story. The linked transaction rules can increase the SDLT attributable to the option fee, requiring a further return and an additional payment.

Another practical difficulty is that different effective dates can matter. HMRC’s example applies the rates in force on the date of the option grant to the option transaction, and the rates in force on the date of the transfer to the transfer transaction. Where rates change between those dates, the calculations become more technical.

It is also important not to confuse:

• the consideration for the transfer itself, which is the purchase price on completion; with
• the linked transaction value, which includes both the option fee and the purchase price.

Finally, this example is specifically about a paid option over non-residential property where the option fee is additional to the purchase price. Different facts may need separate analysis. For example, the SDLT treatment may need closer consideration if the payment structure is different, if the property is residential, or if there is substantial performance before completion.

Key takeaways

• Paying for an option to buy land is itself a land transaction for SDLT purposes.
• If the option is later exercised, the transfer of the property is a separate transaction, but the two transactions are linked.
• The option fee may need a further SDLT calculation and a top-up payment once the property purchase completes.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example of Stamp Duty Land Tax on Options and Pre-emption Rights

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