Capital Allowances Act 2001 section 91

Disposal of oil licences

Section 91 of Schedule 3 sets out special transitional rules for the disposal of interests in oil licences where part of the value is attributable to allowable exploration expenditure, allowing the parties to elect a specified amount to be treated as the disposal value for capital allowances purposes.

• Where a transferor disposes of an oil licence interest during the transitional period (before 13 September 1995, or after that date under a pre-existing unconditional obligation), and part of the value relates to allowable exploration expenditure, the parties may jointly elect a specified amount to be treated as the disposal value of the exploration asset.
• The election causes the disposal to be treated as if an asset representing the exploration expenditure has left the transferor's ownership, with the disposal value equal to the elected amount; for the transferee and any subsequent acquirer, the expenditure attributable to prior mineral exploration and access is capped at the lower of the elected amount and the amount that would otherwise apply.
• The election must be made by the transferor by notice to HMRC, and normally requires the transferee's consent; however, a tribunal may dispense with the transferee's consent if both parties originally agreed on a quantified exploration value and the elected amount matches that agreed figure.
• The election may specify any amount including nil, but cannot be lower than a trading receipt amount already included in the transferor's tax return unless HMRC agrees; once made, the election is irrevocable and cannot be varied.