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HMRC internal manual

Oil Taxation Manual

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Capital Gains: Drilling Expenditure - Introduction

TGCA92\S195

TCGA92\S195 provides that, on a disposal of a licence, certain exploration or appraisal expenditure incurred by the vendor is treated as enhancement expenditure within TCGA92\S38(1)(b).

TCGA92\S195 will allow a deduction in computing chargeable gains where there has been a recovery of research and development allowances given on exploration or appraisal costs, provided these are capital costs falling within CAA01\S441 and disposal values are within the requirements of CAA01\S443.and CAA01\S555.

The rules apply retrospectively to any disposal of a UK or UK Continental Shelf licence (or licence interest) whenever made.

The rules also apply retrospectively to overseas licences. TGCA92\S196 widens the meaning of licence in TGCA92\S195 to include “foreign oil concession”. It also widens definitions of “oil”, “licensed area”, “licensee” and adds a definition of “overseas petroleum”. In relation to TGCA\S195 these definitions are deemed always to have had effect.

Unlike TGCA92\S194, the TGCA92\S195 rules are not restricted to pre-development work obligations or licence swaps.