OT26252 - Capital Allowances: Mineral Extraction Allowance

Assets Formerly Owned by Traders

This covers the situation where a trader incurs capital expenditure in acquiring an asset from another trader who incurred expenditure on the acquisition or creation of that asset, or that trader did not incur such expenditure but a previous owner did in connection with his trade. Trader means a person within the charge to UK tax in respect of his trade after 1 April 1986. Where the asset is in the UK (including the territorial sea), the general second-hand cost restriction only applies if, on or after 1 April 1986, it was owned by a trader who incurred expenditure on it in connection with his trade. In any sequence of traders and non traders, the buyer’s qualifying expenditure is restricted by reference to the qualifying expenditure of the most recent previous trader (CAA2001/s407). The qualifying expenditure of this trader will not necessarily be the historic cost to this person as his qualifying expenditure may have been restricted by reference to expenditure of previous owners.

The qualifying expenditure of the most recent trader is defined in CAA2001/s411.

1. If the previous trader was not entitled to allowances or liable to a balancing charge under the MEA code, it is the lesser of the buyer’s expenditure and the previous trader’s qualifying expenditure.
2. If the previous trader did become entitled to such an allowance or liable to such a charge, it is the lesser of the buyer’s expenditure and the residue of the previous trader’s qualifying expenditure, the residue being the previous trader’s qualifying expenditure less net MEA given.