Example
Section 408: Acquisition of oil licence from non-trader
1415.This section is based on section 118(2) and sections 118(1) and 138A of CAA 1990. It sets out the proposition in section 118(2) after the necessary adaptations required by section 138A.
1416.Subsection (1) applies this section if:
the trader acquires an interest in an oil licence the value of which is partly attributable to mineral exploration and access expenditure of the seller; and
the seller has not carried on a mineral extraction trade.
1417.There is a minor change in subsection (1)(a) as in sections 400, 403 and 407 (paragraphs 1381, 1396 and 1412 above). See Change 47 in Annex 1.
1418.Subsection (2)(b) reduces the trader’s expenditure on acquiring the mineral asset by “E2”.
1419.Subsection (2)(a) treats the trader as incurring qualifying expenditure on mineral exploration and access of an amount that is capped at “E2”.
Example
Assume that:
mineral extraction trader, B, acquires an oil licence for £1,000 from S;
S is not a mineral extraction trader, but S has incurred expenditure of £50 on mineral exploration and access; and
it is just and reasonable to attribute £300 of B’s purchase price to the £50 spent by S.
B is treated as incurring:
£50 of qualifying expenditure on mineral exploration and access; and
only £700 (£1,000 - £300) on the purchase of the oil licence – but it may not all be qualifying expenditure because other restrictions in Chapter 3 or 4 may apply.
