OT30079 - Capital Gains

Computational Points. Part Disposal. Cash Consideration.

If on a part disposal, part of the consideration is in cash or other value not deemed to be Nil under s194, special apportionment rules apply which replace TCGA92\s42(2).

TCGA92\s194(4) provides that where the cash etc consideration exceeds the relevant allowable expenditure (defined in TCGA92\s53) plus indexation allowance in respect of the whole of the licence (or the farmer-out’s interest in it), there is no apportionment and the full amount of that expenditure and indexation is relieved against the consideration leaving Nil allowable costs to be carried forward against any future disposal of the retained interest.

If the cash etc consideration is less than the relevant allowable expenditure and indexation on the whole of the licence, TCGA92\s194(5) provides that the expenditure allowable under TCGA92\s38(1)(a) and TCGA92\s38(1)(b) TCGA shall be apportioned by reference to the formula:

Indexation allowance is then calculated on that apportioned amount. The effect of this is that sufficient allowable expenditure is taken into account which, with indexation allowance, will establish a no gain/no loss position on the disposal. The residue is then carried forward against any future disposal, or part disposal, by the farmer-out.