OT26209 - Capital Allowances: Mineral Extraction Allowance

Expenditure Partly Attributable to Mineral Exploration and Access

There is one instance where expenditure may be relieved partly at 10% and partly at 25%. When a mineral asset (for all practical purposes, this means an oil licence) is acquired other than when originally issued, the expenditure by the purchaser is prima facie relievable, if at all, only at 10%, being expenditure on the acquisition of a mineral asset within CAA2001/s395(1)(b). However, Paragraph 28 of the 1985 Consultative Document reads

" The payments made by a purchaser to acquire existing mineral rights do not constitute expenditure incurred by him on the searching, testing or working a source of mineral deposits and cannot be treated as such. They will generally qualify for relief as expenditure on acquiring a mineral asset or mineral rights. In some cases, however, they may be attributed to assets such as wells .... which themselves represent expenditure which when incurred by the vendor represented qualifying expenditure, e.g. searching. If so, they should be relieved at the 25% rate where an appropriate adjustment has been made in respect of the relief given to the vendor ".