OT30045 - Capital Gains

Undeveloped Area. Definition. 3D Co-ordinates.

Following informal approaches from within the industry and discussions with the DTI in 2001 it became clear that while there was no issue in principle about the application of TCGA92\s194 to swaps involving ‘2D’ areas i.e. based on surface area co-ordinates, there was a concern about whether the legislation would automatically include vertical ‘3D’ areas i.e. area definitions also including depth co-ordinates.

Typically, a field is defined as a surface area, and extends down to the Earth’s core – usually there is no 3D cut-off at a given depth co-ordinate. There are some fields for which this is not the case e.g. Britannia, but this is the exception rather than the norm.

The same is technically true for Development Consents. However, a Development Consent references a Development Plan document, which will specify well depths and refer to the particular geological structure for which consent has been received, and which may provide sufficient delineation of a ‘development area’ for Capital Gains Tax purposes. Where required, Inspectors should request copies of Development Consents and Plans from the companies.

The basic test remains unchanged: the areas swapped must be undeveloped within the meaning of the act, but in principle this can include swaps of areas defined in 3D co- ordinates, but which are not otherwise within the 3D co-ordinates of a Development Consent, as set out in the relevant Development Plan.

In licence areas with no development consents in place this will not be an issue and Inspectors can accept that such swaps are within TCGA92\s194 – this includes areas outside of a field area delineated in 3D.

Difficulty will arise when swaps involve areas within a field (whether 2D or 3D) area that include, or are vertically or horizontally adjacent to, or over/under lap areas, which have Development Consents in place. In such situations Inspectors will need to look closely at the information available in the existing Development Plans to determine whether these include part or all of the areas being swapped and apply the legislation accordingly. Where necessary, assistance is available from the DTI in determining the facts.

Where there is insufficient evidence to determine that a 3D area is not within an existing Development Consent you should refer the matter to an Assistant Director before refusing treatment under TCGA92\s194.

If they are otherwise within TCGA92\s196(1A), swaps involving overseas areas should receive similar treatment.