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HMRC internal manual

Oil Taxation Manual

HM Revenue & Customs
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Capital Gains: Computational Points - Part disposal, cash consideration


When there is a part disposal and part of the consideration is in cash or a value not deemed to be Nil under TCGA92\S194 then special apportionment rules apply. These rules replace the part disposal rules in TCGA92\S42(2).

Consideration exceeds relevant allowable expenditure - TGCA\S194(4)

TCGA92\S194(4) provides that where the consideration referred to above exceeds the relevant allowable expenditure (defined in TCGA92\S53) plus indexation allowance in respect of the whole of the licence (or the farmer-out’s interest in it), then there is no apportionment and the full amount of that expenditure and indexation is relieved against the consideration leaving Nil allowable costs to be carried forward against any future disposal of the retained interest.

Consideration does not exceed relevant allowable expenditure - TGCA92\S194(5)

If the consideration referred to above is less than the relevant allowable expenditure plus indexation on the whole of the licence then TCGA92\S194(5) provides that the expenditure allowable under TCGA92\S38(1)(a) and TCGA92\S38(1)(b) TCGA shall be apportioned and TGCA92\S42(2) shall be read as follows:

The apportionment shall be made by reference to -

  1. The amount or value of the consideration for the disposal on the one hand (A), and
  2. The aggregate referred to in S194(4) on the other hand (C), and the fraction of the said sums allowable as a deduction in computing the amount of the gain (if any) accruing on the disposal shall be

And the remainder shall be attributed to the part of the property which remains undisposed of.

The effect of this is that sufficient allowable expenditure is taken into account which, with indexation allowance, will establish a no gain/no loss position on the disposal. The residue is then carried forward against any future disposal, or part disposal, by the farmer-out.