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HMRC internal manual

Business Income Manual

Measuring the profits (particular trades): Mineral Extraction: royalties relief: method of giving relief

S157, S314 and S340 Income Tax (Trade and Other Income) Act 2005, S135, S258 and S273 Corporation Tax Act 2009, Sch39 Part6 Finance Act 2012

This relief has been withdrawn in respect of mineral royalties that a person is entitled to receive on or after 1 April 2013 in respect of businesses subject to Corporation Tax and 6 April 2013 in respect of businesses subject to Income Tax.

Income received before 1 April 2013 (Corporation Tax) and before 6 April 2013 (Income Tax)

Where an individual, or person not chargeable to CT, resident or ordinarily resident in the UK, receives mineral royalty income paid under deduction of tax relief under before 6 April 2013 which qualifies for relief:

(a) The Income Tax payable for the tax year should be computed on the basis that all the qualifying receipts in that year under mineral agreements and all the expenses of management were one half of what they actually were.

(b) The liability of the chargeable gains accruing in the year in respect of the non-income half of the gross royalties should be computed as in CG71700 onwards.

(c) The excess of the Income Tax suffered by deduction over the amount arrived at in (a) above should be set off against the liability in (b) above and the balance of the excess should be repaid.

Where, exceptionally, such royalties are received in full and are chargeable to tax as property income, the profits of the property business should be computed as in (a) above.

As far as companies resident in the UK are concerned the CT profits for any accounting period should be similarly computed to include one half of the net qualifying income as in (a) above and the relevant fraction of the ‘capital’ element as a chargeable gain.

Capital losses

Relief available under S202 Taxation of Chargeable Gains Act 1992 for capital losses does not apply to mineral leases or agreements entered into on or after the operative dates (1 April 2013 (Corporation Tax) and 6 April 2013 (Capital Gains Tax)). The ability to crystallise losses and the entitlement to carry back losses for up to 15 years will be preserved for mineral leases or agreements entered into before the operative dates. Further guidance can be found at CG71700