OT26253 - Capital Allowances: Mineral Extraction Allowance

Assets Formerly Owned by Non-traders

An oil licence under which CAA2001/s395(1)(a) expenditure has been incurred by a non- trader is deemed, by CAA2001/s411, to be an asset representing mineral exploration and access expenditure. Hence, if the licence is sold to a trader (before the vendor has himself commenced trading), CAA2001/s408 & 409 operate to ensure that the trader's qualifying expenditure cannot exceed the non-trader’s expenditure which is represented by the asset. To the extent that the purchase price does reflect the seller’s exploration and access costs, the purchaser is regarded as incurring such expenditure qualifying at 25%. In effect, the quality of the seller’s exploration and access expenditure is retained in the hands of the purchaser.