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HMRC internal manual

Oil Taxation Manual

HM Revenue & Customs
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Capital Allowances: Plant and Machinery - Exchange of Interests within a Licence

An exchange of interests within a licence is not a disposal of an oil licence within TCGA92\S194 and therefore not a disposal for capital gains purposes.

One element of an agreement to exchange interests will usually be that in respect of each prospect the company which is intended to be the eventual holder of both interests will meet all of the expenditure which under the joint operating agreement would be met by the two companies in their respective percentage interests. This may be directly, for example on a bill from the unit operator, or indirectly, via the other company.

HMRC’s view is that if such expenditure is ultimately borne by the intended eventual holder of both interests, then that company has incurred that expenditure and will qualify for capital allowances on it.

In some cases expenditure will already have been incurred and capital allowances claimed before the agreement is entered into. As there has been no disposal, the agreement will not give rise to either a balancing charge or allowance.