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HMRC internal manual

Oil Taxation Manual

Capital allowances: mineral extraction allowance - restrictions on qualifying expenditure

Oil Licences

Where the asset being acquired is a UK oil licence, the buyer’s qualifying expenditure is specifically restricted by CAA2001\S410.

Where the buyer acquires a licence, or an interest in a licence, issued under the Petroleum (Production) Act 1998 or the Petroleum Production Act Northern Ireland 1964, the qualifying expenditure of the buyer is restricted to the amount paid by the original licensee to the relevant government department in obtaining the licence. This means the initial payment and does not include any continuing annual payments. The initial payments are likely to be small unless the licences were issued at auction. Where only an interest in a licence is acquired the initial payment is apportioned on a just and reasonable basis.

CAA2001\S410 relates to the costs of acquiring the licence itself. Any expenditure which has been incurred by the vendor on exploration and appraisal and which is reflected in the value of the licence when sold falls to be considered under CAA2001\S407 (see OT26320).

Other general restrictions

These include:

  • Second hand Assets - see CA50600 & OT26235.
  • Transfer Between Connected Persons - see CA50800.