OT30380 - Capital Gains

Valuation of Oil Assets (including shares). 31 March 1982.

The need for valuations at 31 March 82 first arose from the introduction of indexation by FA85\s68 and continues as a result of rebasing under FA88.

High oil prices in 1982 will often mean that asset values at 31 March 1982 were higher than original cost. As a result, the combination of a high rebased cost and indexation may result in chargeable gains being materially reduced or indeed the creation or augmentation of losses. The kink test and the loss rules for oil industry assets disposed of after 21 January 1990 (see OT30400) will normally reduce any allowable losses. It is important therefore that the market values proffered in capital gains computations are subjected to critical scrutiny where the effects are material.

The high oil price in 1982 - high in relation to the late 1970s - is one factor affecting the comparison between the value of licences and their cost at 31 March 1982. Other factors which affect this comparison and which, depending on the particular facts, may point to either value or historic cost being higher, are the amount of expenditure actually incurred, the stage of development reached and, not least, what was known about the block or field at that date