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Capital Allowances Act 2001

Chapter 3: Disposals of oil licences: Provisions relating to Parts 5 and 6

1920.This Chapter provides rules relating to the disposal of oil licences for the purposes of Parts 5 (mineral extraction) and 6 (research and development).

1921.These rules, whilst important to those concerned with the oil industry, are likely to be used by a minority of the users of either Part 5 or 6. They are dealt with here as they share many definitions in common but do not belong naturally in either Part 5 or Part 6.

1922.The rules require the “seller” and “purchaser” of certain interests in oil licences, related to undeveloped areas, to treat part of the consideration as having nil value. They also provide for the “recapture/reduction” of R&D allowances in certain cases in which an oil licence is disposed of.

Section 552: Meaning of “oil licence” and “interest in an oil licence”

1923.This section is based on sections 118A(4) and 138A(4) of CAA 1990, section 12(1) of OTA 1975 and section 196(5) of TCGA 1992.

1924.The section provides definitions for the purposes of this Chapter. Unlike section 118A(4) of CAA 1990 there is no reliance on cross-references to section 194 of TCGA 1992.

Section 553: Consideration to be treated as nil

1925.This section is based on parts of section 118A of CAA 1990 and section 196 of TCGA 1992. Section 118A is in Part IV of CAA 1990 but also has effect for Part VII of CAA 1990.

1926.The section treats certain consideration as having no value on the disposal of an oil licence relating to an undeveloped area.

1927.Disregarding some of the consideration affects the allowances and charges in Parts 5 and 6 that are associated with the acquisition or disposal of the oil licence concerned. Broadly, the “seller” may suffer a lower balancing charge and the purchaser may get lower allowances if this section applies.

1928.Subsection (3) might seem to use a different definition of “material disposal” from section 118A(2) of CAA 1990 but this is not the case. See Note 71 of Annex 2.

Section 554: Circumstances in which oil licence relates to undeveloped area

1929.This section is based on section 118A(4) of CAA 1990, section 12(1) of OTA 1975 and section 196 of TCGA 1992. It determines when an oil licence relates to an undeveloped area without using a cross-reference to section 194 of TCGA 1992.

Section 555: Disposal of oil licence with exploitation value

1930.This section is based on section 138A of CAA 1990.

1931.When the section applies, part of the consideration for the oil licence is treated for the purpose of Part 6 (research and development) as if it were for the disposal of an asset representing qualifying expenditure. That treatment can lead to a recapture of R&D allowances given in relation to that qualifying expenditure.

Section 556: Minor definitions

1932.This section is based on sections 64A(12), 118A(4) and 138A(4) of CAA 1990, sections 1(1) and 12(1) of OTA 1975 and section 196 of TCGA 1992. It deals with minor definitions for the purposes of this Chapter.

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