OT30040 - Capital Gains

Undeveloped Areas. Introduction. FA 1988.

Prior to 1988, disposals of UK/UKCS licence interests gave rise to difficulties in the application of existing CG (and CA) legislation. These arose particularly in relation to the valuation of work programme farm-outs and swapped licence interests where no cash consideration was involved, and in the interaction between the SRA and CG provisions relating to previous drilling costs of the farmer-out.

Legislation was introduced with retrospective effect in FA88, and is now found at TCGA92\s194. Broadly it provides that, for arm’s length disposals of pre-development licence interests, the value of any consideration in the form of a work programme commitment in the licence area, or a swapped licence interest (also pre-development) is deemed to be NIL. This eliminates the need to value non-cash consideration.