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The tax treatment of a put option


A client is considering acquiring a put option as a hedging transaction rather than as a speculative investment. A premium of approximately $300 000 will be charged to purchase the option. Will this be treated as a trading or capital matter and will the premium qualify as an allowable deduction for tax purposes? Also what will the position be if the option is not exercised?


The tax treatments of option contracts for income taxpayers and corporation taxpayers are different and are summarised as follows.
Income taxpayers
HMRC’s Capital Gains Manual at CG55402 confirms that: ‘It is a question of fact whether transactions in options themselves amount to a trade. Individuals in particular are unlikely to carry on a...

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