Taxation of Chargeable Gains Act 1992 section 195

Allowance of certain drilling expenditure

Section 195 deals with how certain capital expenditure on oil exploration and appraisal drilling can be treated as an allowable cost when computing chargeable gains on the disposal of an oil licence.

• When an oil licence is disposed of, qualifying capital expenditure on searching for oil or assessing oil-bearing areas within the licensed area can be deducted as an allowable cost in the chargeable gains computation.
• To qualify, the expenditure must be capital in nature, relate to research and development, and either have attracted a research and development capital allowance or would have done so had a connected trade been commenced before the disposal.
• The amount that can be deducted is capped at the disposal value that is (or would be) brought into account for capital allowances purposes as a result of the disposal.
• On a part disposal of a licence, any qualifying drilling expenditure is treated as wholly attributable to the part disposed of and is not apportioned between the part sold and the part retained.