Options and UK Capital Gains Tax: How CGT Works on Options Trading
The one fact that decides almost everything: an option is its own asset for Capital Gains Tax. It is not part of the shares it points at. A call you bought, and the stock it lets you buy, are two separate things in HMRC's eyes — taxed on two separate timelines.
This guide covers exchange-traded equity options held by a private investor — the ordinary case, where gains fall under CGT. Only if your activity amounts to a trade (the badges of trade) does it become income tax instead, which is rare for individuals. Every number below is real output from our calculator, not a hypothetical.
When you buy an option
You pay a premium up front. From there, exactly one of four things happens, and each has its own tax outcome.
- It expires worthless. For a traded option, the expiry is a disposal for nil proceeds, so the whole premium is an allowable loss in the tax year it expires.
- You sell it before expiry. Normal disposal. Gain or loss is the sale price minus the premium you paid.
- You exercise a call. No gain or loss on the option itself. The premium is added to the cost of the shares you buy, and stays there until you sell them.
- You exercise a put. The premium becomes an incidental cost of selling the shares — it comes off your proceeds.
The buyer loses their premium (capital loss). The writer keeps theirs (capital gain, dated to writing date). Both sides are calculated automatically.
One trap on the first point: the allowable loss applies to traded options. For a private, non-traded option (a bespoke contract that isn't exchange-listed), HMRC's general rule gives the holder no loss relief on a lapse — see the worked examples in CG12350 and CG12351. Nearly all retail options are exchange-traded, so the loss is usually allowable — but it's worth knowing the line.
What a disposal looks like in a report
Here's a long call run end to end. You buy one AAPL $150 call for $5.00 a share and later close it for $12.00, paying $1 of fees each way. Because it's a USD contract, each leg is converted to sterling at HMRC's rate for the month it falls in. Taking an example rate of $1 = £0.80:
| Step | Amount (USD) | Amount (GBP) |
|---|---|---|
| Buy 1 AAPL $150 call @ $5.00 (incl. $1 fee) | −$501 | −£400.80 (cost) |
| Sell to close @ $12.00 (less $1 fee) | +$1,199 | +£959.20 (proceeds) |
| Chargeable gain | +$698 | +£558.40 |
The fees fold into each leg automatically — the $501 cost is $500 of premium plus the $1 fee, and the $1,199 proceeds are $1,200 less the closing fee. The currency point matters more than it looks: if the closing trade had landed in a month where the rate was £0.78 rather than £0.80, the gain would come out at £534.42, not £558.40. The calculator pulls the right HMRC monthly rate for each leg, so a move in the exchange rate between opening and closing becomes part of your gain.
Exercise and assignment reach into your shares
This is the part people miss. When an option is exercised, it doesn't produce a gain of its own — instead it rewrites the cost or proceeds of the share trade it triggers. Exercise a call and the premium is added to what the shares cost you. Get assigned on a put you wrote and the premium comes off what the shares cost you.
Your short $105 put is assigned — you buy 100 shares at $105. The $300 premium you received reduces your cost: $10,500 − $300 + $2 fees = $10,202.
Here's a cash-secured put taken all the way through assignment, again in USD across three different monthly rates:
| Step | Amount (USD) | Amount (GBP) |
|---|---|---|
| Write put, collect premium (Jan) | +$299 | +£239.20 |
| Assigned — buy 100 shares at strike (Feb) | −$14,510 | −£11,317.80 |
| Less premium (reduces the share cost) | — | −£239.20 |
| Adjusted cost of the shares | — | £11,078.60 |
| Later sell the 100 shares (Apr) | +$14,990 | +£12,291.80 |
| Chargeable gain on the shares | — | £1,213.20 |
You collected $299 of premium in January, were assigned in February and had to buy 100 shares, then sold them in April. The premium you took for writing the put reduces your cost basis in those shares — £11,317.80 becomes £11,078.60 — so when you sell, the chargeable gain is £1,213.20. The option and the shares are settled as one joined-up transaction, exactly as CG12351 describes.
Keep repeating this — sell a put, take assignment, then write a covered call against the shares — and you're running the wheel. Our guide to the wheel strategy and UK CGT follows one full loop through to being called away.
Writing options: taxed now, sometimes unwound later
Writing — selling an option to open — has a timing quirk that catches people out. Granting an option is itself a disposal under section 144 TCGA 1992, so the premium you receive is a chargeable gain straight away, in the tax year you write it. There's no matching cost, so the whole premium is taxable.
If it lapses, that gain stands and you're done. If it's exercised, the grant is unwound, merged with the share trade, and the tax on the premium is set off or repaid — which can mean amending the year you wrote it, if exercise falls in a later year.
Our Interactive Brokers example report has a lapse case in it. A covered call on NVDA written for $185 of premium ($184.35 after the fee) that expired worthless:
| Asset | Disposal date | Proceeds | Cost | Gain |
|---|---|---|---|---|
| NVDA 20 Jun 2025 $150 call (written) | 27 May 2025 | £138.91 | £0.00 | £138.91 |
The $184.35 net premium converts to £138.91 at May's HMRC rate, there's no cost against it, and the whole £138.91 is the gain — declared in the year the option was written, just as HMRC's grantor example sets out.
Writing in one tax year, exercised in the next
Options rarely respect April. If you write an option in year one and it's exercised in year two, the timing splits in two: the premium was already a chargeable gain in year one (the year of the grant), and the exercise in year two unwinds that grant and merges it with the share trade. In practice that means amending the year-one return to set off or repay the tax on the premium — you don't simply re-tax the premium in year two. If it lapses, nothing crosses the boundary at all: the gain stands in the year you wrote it.
Every outcome in one table
Every path above, with the tax treatment and the tax year it lands in. The written-side rows are the ones people get wrong — the tax year follows the grant, and only exercise can pull it back.
| Scenario | Tax treatment | Tax year |
|---|---|---|
| Bought → expires worthless | Allowable loss equal to the premium (traded options only) | Year of expiry |
| Bought → sold before expiry | Normal disposal: sale price minus the premium paid | Year of sale |
| Bought call → exercised | No gain or loss on the option; premium added to share cost | Year the shares are sold |
| Bought put → exercised | Premium deducted from the sale proceeds of the shares | Year the shares are sold |
| Written → lapses | Premium taxed as a gain, no cost against it (s144 TCGA) | Year of grant |
| Written → exercised / assigned | Grant unwound into the share trade; amend the grant year if exercise is later | Year of exercise |
Every option is a separate asset
This is where options part company with shares. Shares of the same class go into one Section 104 pool and share an average cost. Options don't blend like that. An option is defined by its underlying, its type, its strike, and its expiry — change any one and it's a different asset.
A £50 call and a £55 call are two assets. A call and a put are two assets. June and September expiries are two assets. So a single multi-leg strategy — an iron condor, say — is four separate disposals, not one position you net off at the end. Each leg is calculated on its own.
Why this gets hard by hand
None of the individual rules is complicated. The trouble is volume and bookkeeping. A handful of spreads turns into dozens of separate assets, each with its own outcome — some reaching back to change the cost of shares or rewrite a prior year's return, all of it in dollars that need converting at the right monthly rate. Brokers hand you fills, not disposals.
Our CGT Calculator treats each option as its own asset, applies the right outcome for expiry, sale, exercise, and assignment, folds exercised premiums into the matching share trades, and converts every leg at HMRC's monthly rate — across 60+ strategies. Upload your broker export and the disposals fall out the other side.
Frequently asked questions
Can I claim a loss if my option expires worthless?
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Yes, for exchange-traded options: expiry is a disposal for nil proceeds, so the whole premium is an allowable loss in the tax year it expires. For bespoke, non-traded options HMRC's general rule gives the holder no loss relief on a lapse — see CG12350 and CG12351.
Should I sell or exercise an in-the-money call for tax?
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Selling crystallises a gain or loss on the option there and then (sale price minus the premium paid). Exercising a call produces no gain or loss on the option itself — the premium is added to the cost of the shares you buy, and only taxed when you sell them.
I wrote an option that expired worthless — what is taxed?
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The whole premium. Granting an option is a disposal under section 144 TCGA 1992 with no matching cost, so the premium is a chargeable gain in the tax year you wrote it.
What happens tax-wise if I am assigned on an option I wrote?
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The grant is unwound and merged with the share trade it triggers: on an assigned put, the premium reduces the cost basis of the shares you are assigned. If exercise falls in a later tax year than the grant, the earlier year's return may need amending.
Do options go into my Section 104 pool with the shares?
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No. An option is its own asset — defined by underlying, type, strike and expiry — while shares of the same class share one Section 104 pool. A multi-leg strategy is taxed leg by leg, not netted into one position.
How is a USD option premium converted to pounds?
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Each leg converts at HMRC's monthly exchange rate for the month it falls in. A rate move between opening and closing changes the sterling gain, so the grant year and the exercise year can produce different rates.
Could my options trading be income tax instead of CGT?
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Only if the activity amounts to a trade under the badges of trade, which is rare for individuals. For an ordinary private investor, exchange-traded option gains fall under Capital Gains Tax.
Sources and further reading
- Section 144 TCGA 1992 — options: grant, exercise, and abandonment
- HMRC CG12300 — Capital Gains Manual: options, introduction
- HMRC CG12350 — worked example: call option (grant, exercise, abandonment)
- HMRC CG12351 — worked example: put option
- HMRC CG55536 — traded options: tax treatment summary
- HMRC exchange rates — the monthly rates used to convert USD legs to sterling
- Live IBKR example report — option disposals calculated end to end