OT30155 - Capital Gains

Allowable Costs. Wasting Assets Rules. March 1982 Rebasing. Actual CGT Cost of Licence NIL.

A particular difficulty arises where the actual CGT cost of the licence was nil. This may not be very common in practice. Where the original licence holder is concerned, there will normally have been a CGT cost, because in general application fees and/or initial payments were required in each of the North Sea licensing rounds. There may also have been allowable incidental expenditure. But a company may conceivably acquire a second hand asset for nil cost. The question of whether the wasting asset rules apply in this situation is normally academic, and it is only in cases involving rebasing that it has any practical relevance.

Companies have argued that because expenditure on a licence would have qualified for capital allowances if it had been incurred, it is excluded from the wasting asset rules under TCGA 92\s47(1)(a) even though no expenditure was actually incurred. On the basis of specialist advice, OTO does not accept this argument. If there was no original expenditure then the whole of the March 1982 value should be treated as relating to the wasting asset.