BIM62098 - Mineral Extraction: royalties: method of giving relief

Where an individual, or person not chargeable to CT, resident or ordinarily resident in the UK, receives mineral royalties paid under deduction of tax relief under ICTA88/SCH29/S122 should be given by repayment as follows:

1. The Income Tax payable for the year of assessment should be computed on the basis that all the qualifying receipts in that year under mineral agreements and all the expenses of management were one-half of what they actually were.
2. The liability of the chargeable gains accruing in the year in respect of the non-income half of the gross royalties should be computed as in CG71700 onwards.
3. The excess of the Income Tax suffered by deduction over the amount arrived at in (a) above should be set off against the liability in (b) above and the balance of the excess should be repaid.

A claim for the relief should be made on form R73 (see RE3175).

Where, exceptionally, such royalties are received in full and are chargeable to tax under Schedule A, the assessment and the relief for expenses of management should be computed as in (a) above.

As far as companies resident in the UK are concerned the CT profits for any accounting period should be similarly computed to include one half of the net qualifying income as in (a) above and the relevant fraction of the ‘capital' element as a chargeable gain. For this purpose `company' has the meaning laid down in ICTA88/S832 (1) (see CTM00510) and includes an unincorporated association. The IT deducted from the royalties may be treated as if it were tax deducted from unfranked income (see CTM35200 onwards) and so available for relief either under Schedule 9 or against Corporation Tax under ICTA88/S7 (2).