Taxation of Chargeable Gains Act 1992 section 194

Disposals of oil licences relating to undeveloped areas

Section 194 provides relief from chargeable gains on arm's length disposals of oil licences relating to undeveloped areas, where the consideration received takes the form of other undeveloped area licences or commitments to carry out exploration or appraisal work.

• Where an oil licence relating to an undeveloped area is disposed of at arm's length and the consideration consists of another undeveloped area licence (or an interest in one) or an obligation to carry out exploration or appraisal work, that consideration is treated as having nil value for capital gains purposes.
• Where a single larger transaction involves disposals of two or more licences each relating to undeveloped areas, any obligation to carry out exploration or appraisal work is measured against the combined licensed areas of all the licences involved, not just one.
• Where a part disposal of an undeveloped area licence involves mixed consideration — partly qualifying (nil-valued) and partly non-qualifying — the normal part disposal rules under section 42 are disapplied unless the non-qualifying consideration is less than the total of the allowable expenditure and the indexation allowance that would apply if the whole licence had been disposed of.
• Where the normal part disposal rules do apply to such a mixed consideration disposal, they are modified so that the fraction of allowable expenditure deductible on the disposal is calculated as A divided by C, where A is the value of the actual consideration and C is the aggregate of the allowable expenditure and indexation allowance for the whole licence.

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