Capital Allowances Act 2001 section 407

Acquisition of mineral asset owned by previous trader

Section 407 deals with how a buyer's expenditure on acquiring a mineral asset is split between mineral exploration and access expenditure and asset acquisition expenditure, where the asset was previously owned by another mineral extraction trader.

• When a mineral extraction trader buys a mineral asset previously used in another trader's mineral extraction business, part of the purchase price may be reclassified as qualifying expenditure on mineral exploration and access
• The reclassified amount is the lower of: the previous trader's exploration and access expenditure reflected in the asset's value (E1), and the portion of the buyer's purchase price fairly attributable to that value (E2)
• Any exploration and access expenditure already deducted in calculating the previous trader's taxable profits must be excluded from E1
• The buyer's acquisition expenditure on the mineral asset is reduced by the same amount that is reclassified as exploration and access expenditure, and the mineral asset may comprise multiple components or be derived from one or more earlier assets