What defines a group company for the purposes of section 413 of the Capital Allowances Act 2001?

Under section 413, two companies are group companies if one controls the other, or if both are controlled by the same person. This straightforward control-based test determines whether the section 412 cap on qualifying expenditure for intra-group mineral asset transfers applies to a transaction between those companies.

When does the section 412 expenditure cap not apply to intra-group mineral asset transfers?

The section 412 cap does not apply in two situations: first, where the acquisition involves a UK oil licence and the separate licence payment expenditure limit already applies; second, where the buyer and seller jointly elect for step-into-shoes treatment, so the buyer inherits the seller's capital allowance position.

Does the market value rule for connected party transactions override the section 412 cap?

No. Section 413 confirms that the section 412 cap on qualifying expenditure applies regardless of the market value rule that normally governs connected party or tax advantage transactions. Even if the deemed market value exceeds the original group expenditure, the cap still limits the buyer's qualifying expenditure.

Does the section 412 cap affect mineral exploration and access expenditure on second-hand assets?

No. The section 412 cap does not restrict expenditure that already qualifies as mineral exploration and access expenditure under separate provisions for acquiring mineral assets from previous traders or oil licences from non-traders. These categories of qualifying expenditure remain entirely unaffected by the group transfer cap.

Capital Allowances Act 2001 section 413

Transfers of mineral assets within group: supplementary

Section 413 provides supplementary rules for the intra-group transfer provisions in section 412, including defining what constitutes a group company, setting out when those provisions do not apply, and clarifying their interaction with other rules.

Two companies are group companies if one controls the other, or both are controlled by the same person
The section 412 expenditure cap does not apply where the UK oil licence rules apply or where the parties elect for the buyer to step into the seller's shoes
The section 412 cap applies regardless of market value rules that would normally override the actual sale price in connected party or tax advantage transactions
The section 412 cap does not restrict any expenditure already treated as qualifying expenditure on mineral exploration and access under separate provisions for second-hand assets

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