@nicorama so there actually is a tax event when you sell any call or put option (see my earlier quote), I wasn't aware at the time and now I'd be a lot more careful as you're going to hike up your CGT as a result
Thank you Alex.
I did more research to decipher HMRC docs into plain English. It completely confirms what you are saying for when option expires or close after the tax year cutoff. However, not sure the tool works correctly when a sold option position expires or get closed during the same tax year, esp regarding pooling / cost basis. For my own sanity, here is summary of the rules I got from a session with chatGPT o3-mini:
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1.
Overall Treatment as a Single Transaction:
In principle, the rules are designed so that if you wait until the option is either exercised or closed, you should be able to calculate your overall gain or loss as one net result. For example, if you sell (write) a put and receive a $1000 premium and later buy it back for $500, your overall net gain is $500.
2.
Timing and Reporting Across Tax Years:
– If the option is opened (i.e. the put is sold) and remains open at the end of the tax year, HMRC requires that you recognise the premium received as a gain in that tax year (TY2425 in your example).
– When you later close the position (buy to close) in the following tax year (TY2526), you realise a loss relative to the premium that was originally received.
This later “closing” transaction effectively reduces your overall gain to the correct amount. However, because of the split in timing, the loss is reported in the later year. You then use that loss (or negative adjustment) to offset other gains in TY2526 or carry it forward. In other words, you are not “refunding” tax already paid in TY2425—but you are adjusting your overall taxable result.
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So I think the following applies:
- if an option is closed or expires during the same tax year, both sides should match and be treated as one transaction and one CG number
- if an option is still open at end of tax year, then treat it as 2 transactions, making sure that the second leg offsets
So for example, on Jan 25, I sell June 25 puts for $10 ($1000 premium).
- scenario 1:
In March, I close those puts by buying back at $4, for $400
both transactions are matched, and effectively I have one transaction with $600 gain for TY2425
- scenario 2:
It expires in June worthless.
For TY2425 I have the full premium shown as CG, eg $1000.
For TY2526, since option expired worthless, there is nothing to declare since CG of $1000 was already declared for TY2425
- scenario 3
I close it in April for $2
For TY2425 I have the full premium shown as CG, eg $1000.
For TY2526, I have a net loss of $200 (cost to close) which offsets my declared gain of $1000 in TY2425
Did I get that right?
Looking at the results from your tool, I see at least one thing that might not be correct:
I have trades that fall under scenario 1 (bought to close, same tax year), but in the 'trade matching' pane, I see some of those marked as 'same day' or 'bed and breakfast' for 'match type' when I closed them close to the date where I sold them. Based on the above, I don't think those matching rules apply to selling those options, instead they need to use pooling rule cost. Unfortunately it seems HMRC has different pooling rules for options than stocks. Here is what I got from my research:
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The underlying principle is the same for both shares and options—to ensure you’re taxed on the net economic result of your trading—but the mechanics differ because of the nature of the instruments and the way HMRC’s guidance is written.
For Shares (Section 104 Pooling)
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Fixed Pool and No “Same‑Day” Matching Requirement:
When you acquire shares (outside of a tax‐free wrapper), each purchase is added to a Section 104 pool. When you sell shares, you use a simple weighted‑average cost from that pool to determine your gain or loss. There’s no special “same‑day” or “bed and breakfast” matching because all acquisitions and disposals are aggregated continuously, regardless of when they occur.
•
30-Day Rule for Bed and Breakfasting:
For shares there is a well‑known rule (often referred to as the “bed and breakfast” rule) that if you sell shares and then buy them back within 30 days, HMRC matches the repurchase with the sale so that the loss cannot be immediately used to offset gains—the holding period is effectively suspended.
For Options
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Pooling by Series, Not a Continuous Pool:
With options, HMRC requires that all transactions within the same option series (identical in terms of underlying asset, strike, expiry, etc.) are pooled together. This pooling is similar in spirit to the Section 104 pool for shares but is applied on a per‑series basis.
•
Matching of Transactions:
In practice, when you write (sell) an option and later close it (buy to close) within the same series, you must match the opening and closing transactions so that the gain or loss is computed on the net result. For example, if you write puts and then buy to close part or all of that position, you calculate the gain or loss on the closed contracts using the weighted‑average premium from the pool.
•
Same‑Day or Short‑Period Transactions:
While there isn’t a strict “30‑day bed and breakfast” rule for options as there is for shares, HMRC’s guidance does include provisions that require same‑day (or very near same‑day) transactions to be matched. This prevents you from artificially timing separate trades within a very short period to create or defer a loss. In effect, if you write and then close an option on the same day (or within a short window defined by the guidance), those transactions are treated as one combined event rather than two separate taxable events.
•
Spread Trades and Matching:
Similarly, if you are involved in a spread (where one leg is a sale and another is a purchase within the same series), the rules require that you match the legs to determine the overall gain or loss. This ensures you can’t cherry‑pick which leg to report as a gain or loss to manipulate your tax position.
So, How Do These Matching Rules Differ?
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For Shares:
The bed and breakfast rules are explicit—a sale and subsequent repurchase within 30 days are matched to prevent loss harvesting. The Section 104 pool continuously aggregates all transactions.
•
For Options:
There isn’t a “30‑day” rule per se; instead, all transactions in a given option series are pooled. However, if you execute a same‑day (or very short‑term) opening and closing, HMRC’s matching rules will require that you calculate the gain or loss as a single net transaction. This prevents you from, for example, selling an option to record a gain (or loss) and then later closing it in a separate transaction with a different price in an attempt to alter the reported result.
• In other words, while the specific “bed and breakfast” concept as applied to shares does not directly apply to options, HMRC has put in place analogous matching rules within the pooling method to ensure that if transactions occur in rapid succession (or are part of a spread), they are combined and the net result is used for tax purposes."
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Thoughts? Sorry for the long post, writing this also for my own understanding and you are clearly way ahead of me there.
PS: for the wishlist, would be great to get more readable option series label in the summary tables, something like what's shown on IBKR (example: "IWM June 21'25 200 PUT')
