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HMRC internal manual

Oil Taxation Manual

Non-Residents Working on the UK Continental Shelf: Income from rights - Examples

The following are examples of rights relating to oil and gas assets caught by the above provisions:

  • Overriding royalties - for example where a licensee assigns his licence interest to another and reserves a royalty in it for himself, or where a licensee assigns a royalty interest to another.
  • Net profit arrangements - for example where a licensee assigns his licence interest to another reserving for himself a percentage of profits from working the licence area.
  • Production payments - for example the right to receive in cash or kind a specified share of the production from a licence interest (free of development and operating costs) until an agreed amount of production, or a specified sum of money, has been received; this may be retained when a licensee assigns his licence or may be carved out from the licensee’s existing interest.

So, for example, a gain arising on the disposal of an overriding royalty in respect of production from the UK Continental Shelf held by a Dutch individual resident in Holland would be chargeable to UK tax.