History
1357.The Income Tax Act 1945 introduced mines, oil wells, etc. allowances (MOWA) for capital expenditure incurred by a person working a mine, oil well or other source of mineral deposits of a wasting nature. MOWA were limited to capital expenditure on mineral exploration and access or the construction of works likely to be of little value when the mineral source was no longer worked or a foreign concession came to an end. There was no relief for capital expenditure on acquiring the site of mineral deposits or the deposits themselves. In later years relief was extended to:
overseas mineral rights (including land to the extent that its value was attributable to mineral deposits);
abortive exploration connected with a mineral extraction trade;
machinery and plant used for mineral exploration;
certain land overseas;
contributions to certain overseas buildings or works; and
sources of mineral deposits in the UK.
1358.MOWA were output-related. No relief was given until a source of mineral deposits was worked or abandoned. This was out of line with other capital allowances.
1359.In contrast mineral extraction allowances, introduced, following consultation, by FA 1986, are similar to other capital allowances. But they are not identical to other allowances:
annual allowances are a percentage of the balance of qualifying expenditure – known as the reducing-balance basis – like plant and machinery (and patents and know-how); but
there is no pooling so – like industrial buildings and agricultural buildings – items of expenditure are dealt with separately.
1360.There were provisions in FA 1986 dealing with the transition from MOWA so that the MOWA provisions could be repealed instead of running on indefinitely. The main significance of these transitional provisions now is that they allow a recapture of excessive allowances to be made under this Part in respect of expenditure which originally qualified for MOWA. These provisions are dealt with in paragraph 88 of Schedule 3 (transitionals and savings).
1361.Since FA 1986 the main changes were in:
FA 1996 which inserted section 118(2) of CAA 1990 dealing with purchases of an oil licence from a person who has not carried on a mineral extraction trade; and
FA 1997 which inserted section 115(2A) of CAA 1990 dealing with purchases of mineral assets if the previous trader had incurred deductible expenditure on mineral exploration and access and that expenditure was reflected in the value of the purchased mineral asset.