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HMRC internal manual

Oil Taxation Manual

Capital gains: extension of ring fence: assets used in connection with oil fields - meaning of ring fence reinvestment and disposal consideration

A disposal and acquisition is a ring fence reinvestment if:

  • the disposal was

    • a material disposal (see OT30471), or
    • a disposal of a UK licence which relates to an undeveloped area;
  • the old assets were used only for the purposes of the person’s ring fence trade;
  • the new assets are taken into use, and used only, for the purposes of one or more of the following trades,

    • the person’s ring fence trade,
    • if the person is a member of a CG group of companies, a ring fence trade of another member of that group; and
  • the new assets are oil assets.

Each of the following is an oil asset:

  • an interest in oil to be won from an oil field,
  • an asset used in connection with an oil field,
  • a structure which is to be placed on the seabed of the UK continental shelf,
  • an asset used wholly in the winning of oil, or in the measuring of oil won, in the UK otherwise than from an oil field,
  • as asset used for the initial treatment or storage of oil in the UK,
  • as asset used for the transportation of oil from an oil field to the UK, and
  • a UK licence which relates to an undeveloped area.

With the terms in the first six bullets interpreted as in OTA1975\S12, and the final bullet interpreted as in TCGA92\S194.

If the disposal consists of:

  • disposal of a licence to which TCGA92\S195D(3) applies, or
  • disposal of two or more licences to which TCGA92\S195D(4) applies (see OT30137).

The consideration for the disposal is taken as the whole of the non-licence consideration obtained on the disposal, and any reference to disposal consideration (including in TCGA92\S198A(4), see OT30472) has effect subject to this rule.

For disposals made on or after 24 March 2010 the ring fence reinvestment treatment is available where the new asset is exploration, appraisal and development expenditure.

The incurring of such expenditure in the course of a ring fence trade is treated for ring fence reinvestment purposes as the acquisition of assets:

  • which are the new assets mentioned in TCGA92\S152,
  • which are taken into use, and used only, for the purposes of the ring fence trade,
  • which are oil assets, and
  • which fall within the classes of assets listed in TCGA92\S155.