BIM62025 - Mineral extraction: restoration expenditure

Where a mining concern makes a payment to a landowner in respect of restoration for surface damage, the tax treatment is as follows:

• No deduction is allowable for a lump sum payment in respect of possible future damage, or for payments of such a lump sum in instalments. The lump sum is capital expenditure on the acquisition of a fixed capital asset of the trade (see BIM62030). A provision for such capital expenditure is similarly not an allowable deduction.
• Where no such right has been acquired (see BIM62030), a deduction is allowable for a payment of compensation for actually ascertained past damage to another person's property. A provision for such expenditure is also an allowable deduction, provided it accords with generally accepted accounting practice and is accurately quantified.
• No deduction is allowable for payments for the purchase of the surface land and unascertained past damage. Such a payment is capital expenditure on the acquisition of a fixed capital asset. However, where part of the expenditure is payment for actual past damage, and the agreement makes this clear, that element is allowable.
• Rent in respect of any land or easement within the meaning of ICTA88/S119, paid before 1 May 1995, is not an allowable deduction. Relief for such rent paid on or after 1 May 1995 is an allowable deduction, provided the payment is not an annual payment (see BIM62035).