OT26260 - Capital Allowances: Mineral Extraction Allowance

Transfer Between Connected Persons

As with other capital allowances, special rules apply to sales between connected persons and main benefit sales. The normal rules in Section 567, 568 and 569 CAA2001 apply, under which, in general terms, market value is substituted for sale consideration, but buyers and sellers may make an election under Section 569 CAA2001 as long as:

1. It is not a main benefit case.
2. Neither party to the sale is non resident.
3. The buyer is not a dual resident investing company (after 1 April 1987).

Under the election, the written down value is substituted for market value (if lower than market value).

Under CAA2001/s412, where no Section 569 CAA2001 election is made in respect of a mineral asset transferred between companies under common control, the qualifying expenditure of the buyer is restricted to the expenditure incurred by the seller in acquiring the asset.

However, CAA2001/s412 does not apply to a Petroleum Act licence within s410. In this instance, where no Section 569 CAA2001 election is made, the qualifying expenditure of the buyer is restricted to the initial cost of the licence with the balance of the buyer’s expenditure being considered under CAA2001/s407.