OT26250 - Capital Allowances: Mineral Extraction Allowance

Acquisition of a Mineral Asset

A mineral asset is defined as "any mineral deposit or land comprising mineral deposits" or "any interest in or right over such deposit or land". In effect a mineral asset is a licence whether UK, non UK, onshore, or offshore. Relief is available at 10% per annum on the qualifying expenditure. Following a decision of the Special Commissioners that a production licence is an interest in land, SRA will not be due. The position may not necessarily be so clear cut in respect of other licences, concessions, etc. but these should also be treated as only relievable at 10%.

Licences are issued for the UK/UKCS under Petroleum (Production) Act 1934. There are two kinds of licence, namely, an exploration licence and a production licence. The former is a non- exclusive authority to carry out geological and geophysical surveys and shallow drilling to obtain general geological information about strata. They are of limited life and do not require an initial payment. The exclusive Production Licence covers the most important stages of exploration and development as well as actual production. In these cases initial payments are required on the application for a grant of a licence in addition to continuing rental payments. The initial payment is capital, the rental payments revenue.