Capital Allowances Act 2001 section 408

Acquisition of oil licence from non-trader

Section 408 deals with the tax treatment when a mineral extraction trader buys an interest in an oil licence from someone who was not carrying on a mineral extraction trade, where part of the licence's value reflects the seller's spending on mineral exploration and access.

• Where a mineral extraction trader buys an oil licence interest from a non-trader, and part of the licence value reflects the seller's mineral exploration and access expenditure, special rules apply to split the purchase price.
• The buyer is treated as incurring qualifying expenditure on mineral exploration and access equal to the lower of the seller's actual exploration expenditure and the portion of the purchase price reasonably attributable to that expenditure.
• The buyer's expenditure on acquiring the oil licence interest is reduced by the amount reasonably attributable to the seller's exploration expenditure, preventing a double allowance.
• The terms "oil licence" and "interest in an oil licence" carry the same meaning as defined in Chapter 3 of Part 12 of the Capital Allowances Act 2001.