Capital Allowances Act 2001 section 404

Exclusion of undeveloped market value of land

Section 404 ensures that when a mineral asset is an interest in land, the underlying land value (stripped of its mineral worth) cannot count as qualifying expenditure for mineral extraction allowances.

• The portion of the purchase price equal to the land's undeveloped market value is excluded from qualifying expenditure — this is the price the land would fetch on the open market if it contained no mineral deposits and only existing permitted development could ever be carried out.
• Existing permitted development means development that has already been lawfully carried out (or begun) at the time of acquisition, or development that could be lawfully carried out under a general development order.
• For land outside the United Kingdom, whether development has lawfully taken place is judged under the local law of the territory where the land is situated, but the general development order test is applied as though the land were in England.
• This exclusion does not apply where the buyer and seller have jointly elected under section 569 for the sale to be treated as being for an alternative amount (a "step into the seller's shoes" basis).