OT26213 - Capital Allowances: Mineral Extraction Allowance

Disposal of Part Asset

Where part of an asset is disposed of, ceases to exist etc., a balancing allowance/charge may arise. Section 571(1) CAA2001 allows treating the retained part and the part disposed of as separate assets. This applies in particular to the giving up of part of a licence interest, which triggers a balancing allowance on that part given up. Qualifying expenditure on the whole asset would be apportioned between the retained and the disposed parts, normally pro-rata to the interests in the licence.

If, for convenience, in the circumstances set out in above, expenditure on different assets has been grouped together, there is generally no objection to the deduction of any disposal receipt from the balance of qualifying expenditure, with the remaining expenditure continuing to attract writing down allowances. In the case of a part disposal, a company may, for computational purposes, deduct the disposal receipt from the written down value without taking the benefit of a balancing allowance. Such treatment may be accepted except where there are disposals to a trader and a separate computation will be required if it is necessary to apply the second-hand cost restriction