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Cross-option agreements, how the options work
A cross-option agreement, also called a double option agreement, keeps a company's shares with the people running it.
It gives the surviving shareholders the option to buy the shares of a shareholder who passes away, from the personal representatives (Royal London ↗).
If either side exercises its option, the other must comply (Royal London ↗).
Paired with shareholder protection insurance, it turns a payout into a share purchase.
Every claim here is our summary of a named external source, linked beside it. Sources change: check the wording at the link before you rely on it.
Cross-option agreements, the key facts
The agreement is the legal half of shareholder protection; the insurance is the money half.
Each card is from Royal London's adviser guide, Legal & General's template agreement or HMRC.
- Two options
Survivors may buy; the personal representatives may sell. Either can make the other comply (Royal London ↗).
- Timing
Options can only be exercised after a shareholder passes away, within a set option period (Royal London ↗).
- Business relief
Still available, despite the estate getting cash for the shares (Royal London ↗).
- For companies
Legal & General's template is for limited company shareholders, not LLP members or partners (Legal & General ↗).
- Critical illness
Royal London says shareholders may prefer a single option agreement (Royal London ↗).
- Take advice
Legal & General strongly recommends your own legal or tax adviser (Legal & General ↗).
What is a cross-option agreement, and how does it work?
Royal London says a cross option agreement gives the surviving shareholders the option to buy the shares from the personal representatives.
If either side wants to exercise its option, the other must comply.
Options can only be exercised on the death of a shareholder, and there is a specific option period (Royal London ↗).
In Legal & General's template, the price is a value set in the agreement if the shareholder passes away within three years of signing, and a fair value otherwise (Legal & General ↗).
The insurance supplies the money.
In the own-life structure, each shareholder insures their own life for the value of their shares, in trust for the others, who use the proceeds to buy (Royal London ↗).
Sign
The shareholders sign the agreement
Each gets an option to buy and, through their estate, an option to sell. Neither is bound until an option is used.
Insure
Cover goes on each shareholder
For the value of their shares, written in trust for the other shareholders.
Payout
The options open
In Legal & General’s template: three months for the survivors to buy, six for the estate to sell.
Buy
The payout funds the purchase
The trustees pay the survivors, who buy the shares from the personal representatives.
From Royal London (Royal London ↗) (Royal London ↗) and Legal & General's template (Legal & General ↗). Other agreements set their own periods.
Why cross-option agreements matter
Without an agreement, Royal London says the spouse or family of a shareholder who has passed away might keep the shares and become involved in the business, or sell them, if fully paid, to an external third party even against the other shareholders' wishes (Royal London ↗).
A binding agreement is not the answer either.
HMRC calls an agreement that obliges the estate to sell and the survivors to buy a buy and sell agreement, and says it prevents the shares qualifying for business relief (HMRC ↗).
Options avoid that.
From HMRC's Inheritance Tax Manual and Royal London. Take legal advice on the wording of any agreement.
Business property relief and inheritance tax
Royal London says business property relief will still be available despite the estate getting cash for the shares under a cross option agreement, because the options only open once a shareholder has passed away (Royal London ↗).
HMRC's test is whether there is a binding contract for sale (HMRC ↗).
Where the company buys back the shares, Royal London says a cross option or single option agreement should be in force between the company and the outgoing shareholder or their personal representatives (Royal London ↗).
The test
Is there a binding contract for sale?
HMRC asks whether the estate must sell and the survivors must buy.
Options
No contract, relief stays
An option to buy and an option to sell is not a contract for sale.
Buy and sell
A contract, relief lost
A binding buy and sell agreement prevents the shares qualifying for business relief.
From HMRC's Inheritance Tax Manual, IHTM25292 (HMRC ↗).
Critical illness and the single option
For critical illness, Royal London says shareholders may use a single option agreement rather than a double option, so the others cannot force a shareholder who is ill to sell (Royal London ↗).
Legal & General's template takes that shape (Legal & General ↗).
Check it for yourself
Every claim on this page is our summary of one of the documents listed here.
We last checked them against the live sources on 28 September 2026.
The documents are the authority, not this page.
Insurers and HMRC update them, so validate any figure or condition at its link before you rely on it.
- Royal London: shareholder protection ↗Cross and single options, buy and sell agreements, business property relief
- Legal & General: Shareholders’ Cross Option Agreement ↗The template: option periods, price and trust (W13232)
- HMRC Inheritance Tax Manual, IHTM25292 ↗Contracts for sale, options and business relief
- Royal London: company share buyback ↗Companies Act requirements and the option agreement for a buyback
Cross-option agreement FAQs, answered
Not financial advice. This page is general information. Before buying insurance, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗). For free guidance, see MoneyHelper.