Option Agreement and Sdlt


    Option Agreement and SDLT: What You Need to Know

    When it comes to property transactions, it is important to understand the legal and financial implications of various agreements. One such agreement is an Option Agreement, which can have implications for Stamp Duty Land Tax (SDLT). In this article, we will discuss what an Option Agreement is, how it works, and how it can affect SDLT.

    What is an Option Agreement?

    An Option Agreement is a contract between two parties – usually a property owner and a potential buyer. The agreement grants the buyer the option to purchase the property from the owner at a future date, usually within a specified time frame. The terms of the option, including the price to be paid for the property and the conditions under which the option can be exercised, are negotiated and agreed upon when the option is granted.

    How does an Option Agreement work?

    When an Option Agreement is granted, the buyer pays a fee to the property owner for the right to purchase the property at a future date. This fee is often a percentage of the agreed-upon purchase price for the property. The buyer then has the option to exercise the option to buy the property within the specified time frame, or to let the option lapse.

    If the buyer exercises the option, the agreed-upon purchase price is paid to the property owner, and the property is transferred to the buyer. If the buyer lets the option lapse, the fee paid to the property owner is forfeited, and the option is no longer valid.

    How does an Option Agreement affect SDLT?

    In a property transaction, SDLT is a tax that is paid by the buyer of the property. The amount of SDLT payable depends on the purchase price of the property. However, in the case of an Option Agreement, SDLT is not payable until the option is exercised.

    When the option is exercised, SDLT is payable on the agreed-upon purchase price for the property, less any amount already paid as option fees. This means that if a buyer pays a fee of £10,000 for an option to purchase a property for £500,000, and then exercises the option, SDLT would be payable on £490,000, rather than on the full purchase price of £500,000.

    It is important to note that if the option lapses and the buyer does not exercise it, no SDLT is payable. However, if the buyer exercises the option and then resells the property within six months, SDLT may be payable on the total amount received for the property, including any profit made on the sale.


    Option Agreements can be a useful tool in property transactions, allowing buyers to secure the right to purchase a property at a future date. However, it is important to understand the legal and financial implications of such agreements, including their impact on SDLT. If you are considering an Option Agreement, it is recommended that you seek professional legal and financial advice to ensure that you fully understand the terms and conditions of the agreement, and any tax obligations that may arise.

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