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HMRC internal manual

Capital Gains Manual

Mineral leases: terminal loss relief: example

On 1 January 1975, a company granted a 25- year mineral lease over a piece of land which it owned. Under that lease, it received mineral royalties of £20,000 per year.

By virtue of TCGA92/S201 (1), see CG71700, it was treated as making a chargeable gain of £10,000 in each of the 25 years in question.

The company’s accounting period ran to 31 December in each year. During the 25-year period in question, the only other chargeable gains made by the company were gains of £30,000 in the accounting period ended 31 December 1997.

The mineral lease expired on 31 December 1999 and the company immediately claimed relief under TCGA92/S202 (3). After agreeing valuations a terminal loss of £50,000 arose. The company elected to have this loss carried back under TCGA92/S202 (9)-(11).

The loss would be utilised by relieving the gains arising in each of the five accounting periods ending on 31 December 1998, 1997, 1996, 1995 and 1994. This would exhaust the terminal loss and no further relief would be available.

It should be noted that no part of the terminal loss can be used to offset the `other’ gains arising in the accounting period ended 31 December 1997.