Finance Act 1963

37 Annual allowances for mineral depletion in the United Kingdom

(1) Subject to the provisions of this section, where, foi the purposes of a trade carried on or about to be carried on by him, a person incurs capital expenditure on the acquisition of a mineral asset the acquisition of which entitles him to work a mine, oil well or other source of mineral deposits of a wasting nature in the United Kingdom, and the trade consists of or includes the working of that source, he shall be entitled for any year of assessment the basis period for which ends after the incurring of the expenditure to an annual allowance in respect of the expenditure.

(2) Subject as aforesaid, the annual allowance for a year of assessment shall be equal to the fraction mentioned below of the royalty value of the output in the basis period for the year from the source to which the expenditure relates, that is to say—

(a) where the first working of the source after the expenditure was incurred was less than ten years before the end of that basis period, one-half ;

(b) where that first working was less than twenty but not less than ten years before the end of the basis period, one-quarter;

(c) in any other case, one-tenth.

(3) An annual allowance under this section in respect of any expenditure shall not be made to a person for a year of assessment unless the amount of the expenditure exceeds the aggregate of any allowances under this section made to him for previous years in respect of the expenditure together with any capital sums accruing to him in or before the basis period for the year by virtue of his acquisition of the mineral asset in question, and where made shall not be greater than the amount of the excess; and for this purpose there shall be deemed to have been made for years preceding the year 1963-64 such annual allowances as would have fallen to be made if this section had always had effect.

(4) Where in the basis period for any year of assessment a person ceases to work the source to which capital expenditure incurred by him relates and, apart from this and the foregoing subsection, an annual allowance under this section would fall to be made to him for that year in respect of the expenditure, the allowance shall not be made, and—

(a) if the aggregate of any allowances under this section made to him for previous years in respect of the expenditure exceeds so much of the expenditure as represents the cost of acquiring the output got by him from the source (other than output got before the 4th April 1963), a balancing charge on an amount equal to the excess shall be made on him for that year, or

(b) if that aggregate is less than so much of the expenditure as represents the cost of acquiring that output, a balancing allowance equal to the difference shall be made to him for that year.

(5) So much of the capital expenditure incurred by a person on the acquisition of a mineral asset as remains after deducting—

(a) the market value of the asset at the time the source to which the expenditure relates ceases to be worked by ' him, and

(b) any capital sums accruing to him before that time by virtue of his acquisition of the asset,

shall be taken for the purposes of the foregoing subsection to represent the cost of acquiring the output got by him from the source; and where part of the output was got by him before the 4th April 1963, the cost of acquiring the part got on or after that date shall be taken for those purposes to be an amount which bears to the amount so remaining the same proportion as the royalty value of the output from the source on or after that date bears to the royalty value of the whole output got by virtue of the expenditure.

In this subsection " market value ", in relation to an asset, means the price which it might reasonably be expected to fetch on a sale in the open market (whether for use by the purchaser for mining purposes or other purposes) if, before the sale, the owner of the asset had carried out such works (if any) for restoring or otherwise making good the land surface at the site of the source as, having regard to the obligations imposed on him and other relevant circumstances, he might reasonably be expected to carry out whether or not he sold the asset, but reduced by so much of that price as is attributable to matters not representing any part of the capital expenditure in question.

(6) Where a balancing adjustment is made in respect of a person under subsection (4) of this section, or would fall to be so made if the relevant amounts were not equal, and after ceasing to work the source he carries out any works for restoring or otherwise making good the land surface at the site of the source, the cost of those works shall not be taken into account in computing for the purposes of tax under Case I of Schedule D the profits or gains of his trade unless it was assumed, in computing the market value of the asset for the purposes of the said subsection (4), that those works would be carried out.

(7) Where any allowance under this section falls to be made to a person in or before a year of assessment in the basis period for which he ceases to work the source to which the expenditure in question relates, and in the basis period for a later year of assessment he again begins to work the source, then—

(a) in computing, in accordance with subsection (2) of this section, the amount of an annual allowance for the later year or any subsequent year, the period between the cessation and recommencement of working shall be disregarded ; and

(b) in computing, for the purposes of subsection (3) or (4) of this section, the aggregate of allowances for previous years, those allowances shall be treated as reduced by the amount on which any balancing charge under paragraph (a) of the said subsection (4) has been made in respect of the expenditure.

(8) Allowances or charges falling to be made under this section to or on any person shall be made to or on him in charging the profits or gains of his trade.

(9) Where a person (in this subsection referred to as " the transferee ") acquires a mineral asset from another person (in this subsection referred to as " the transferor "), and the transferee is a body of persons over whom the transferor has control, or the transferor is a body of persons over whom the transferee has control, or both the transferee and the transferor are bodies of persons and some other person has control over both of them, the capital expenditure incurred by the transferee on the acquisition of the asset shall be taken for the purposes of this section (including this subsection) not to exceed the capital expenditure incurred by the transferor on its acquisition by him or, where the asset consists of an interest or right granted by the transferor, so much of the capital expenditure so incurred by the transferor as, on a just apportionment, is referable to that interest or right; and the expenditure incurred by the transferee shall where necessary be treated as reduced accordingly.

(10) Where in the basis period for any year of assessment a person, having previously incurred capital expenditure on the acquisition of a mineral asset the acquisition of which entitled him to work a source, incurs for the purposes of the trade capital expenditure on the acquisition of another mineral asset the acquisition of which entitles him to work the same source, this section shall apply as respects that year and subsequent years of assessment as if the assets were one mineral asset capital expenditure on the acquisition of which was incurred by him when he incurred the first-mentioned expenditure and was of an amount equal to the aggregate of that expenditure and the further expenditure:

Provided that where the first-mentioned expenditure was incurred before the 4th April 1963 and the further expenditure on or after that date—

(a) no greater allowances shall for the purpose of subsection (3) of this section be deemed by reason of this subsection to have been made before that date;

(b) the cost of acquiring output got before that date, as computed under subsection (5) of this section, shall not by reason of this subsection be treated as increased.

If the asset to which the further expenditure relates extends to mineral deposits or land not included in the asset to which the first-mentioned expenditure relates, so much of it as so extends shall be treated for the purposes of this section as a separate mineral asset, and the further expenditure shall be apportioned between the assets as may be just.

(11) References in this section to expenditure on the acquisition of an asset do not include—

(a) expenditure to which Chapter III of Part X of the Act of 1952 applies; or

(b) expenditure on machinery or plant, or on any asset which has been treated for any year of assessment as machinery or plant; or

(c) expenditure on any building or structure,

and where expenditure was incurred on the acquisition of an asset in respect of which, for years of assessment previous to a year for which he first becomes entitled in respect of the expenditure to an allowance under this section, the person incurring the expenditure has been allowed any deductions under Schedule 9 to this Act, the expenditure shall be treated for the purposes of this section as reduced by so much of those deductions as, if he had been entitled to an allowance under this section for earlier years, would have been excluded by paragraph 5 of that Schedule.

(12) In this section—

• " mineral asset " means any mineral deposits or land comprising mineral deposits, or any interest in or right over such deposits or land ;

• " output " in relation to a source, means mineral deposits lifted or extracted from the source ;

• " royalty value " in relation to any output from a source means the amount of the royalties that would be payable on that output if the person working the source were a lessee under a lease, for a term expiring immediately after that output was produced, granted to him at the date when the expenditure in question was incurred and providing for the payment of such royalties on output from the source as might reasonably have been expected to be provided for by such a lease, but reduced by the amount of any royalties actually payable in respect of that output.

(13) Subject to the provisions of this section, the Income Tax Acts shall have effect, and this section shall be construed, as if it were contained in Part X of the Act of 1952:

Provided that the provisions of the said Part X shall apply in relation to this section subject to the following modifications, that is to say—

(a) section 323(1) shall be deemed to require a claim for an allowance to be made in such form and accompanied by such plans and other particulars as the Commissioners of Inland Revenue may direct;

(b) section 325(2) (meaning of " basis period ") shall apply for the purposes of subsection (2) of this section with the omission of the proviso ;

(c) in section 326(1) (apportionment of the consideration on sales etc.) the reference to expenditure incurred on the provision or the purchase of property shall be deemed to include a reference to expenditure on the acquisition of a mineral asset;

(d) section 327 and Schedule 14 shall not apply, so how ever that paragraph 2 of that Schedule (but not paragraph 4) shall apply for determining the amount of any capital sum accruing to a person by virtue of his acquisition of a mineral asset.

(14) The foregoing provisions of this section shall have effect only for the year 1963-64 and subsequent years of assessment but for that purpose shall apply in relation to expenditure incurred and other things done before as well as after the beginning of the year 1963-64.