Capital Allowances Act 2001 (c. 2)

Part 5 Mineral extraction allowances

Chapter 4 Qualifying expenditure: second-hand assets

Qualifying expenditure on assets limited by reference to historic costs

411 Assets generally: limit is residue of previous trader’s qualifying expenditure

(1) This section applies if—

(a) a person carrying on a mineral extraction trade (“the buyer”) incurs capital expenditure on acquiring an asset (“asset X”) for the purposes of that trade, and

(b) expenditure was previously incurred on acquiring asset X or bringing it into existence by—

(i) the person from whom the buyer acquired asset X, or

(ii) an earlier owner of asset X,

in connection with a mineral extraction trade carried on by the person incurring that expenditure.

(2) In this section “the buyer’s expenditure” means the expenditure referred to in subsection (1)(a) less any amount which, under section 404 (exclusion of undeveloped market value of land), is not qualifying expenditure on the acquisition of the mineral asset.

(3) If this section applies, the buyer’s expenditure is qualifying expenditure only to the extent that it does not exceed the residue of the previous trader’s qualifying expenditure.

(4) The residue of the previous trader’s qualifying expenditure is—

where—

• QE is so much of the expenditure incurred by the previous trader on the acquisition or bringing into existence of asset X as constitutes qualifying expenditure for the purposes of this Part,

• A is the total of any allowances made under this Part in respect of the previous trader’s qualifying expenditure, and

• B is the total of any balancing charges made under this Part in respect of the previous trader’s qualifying expenditure.

(5) “The previous trader” means—

(a) the person incurring the expenditure mentioned in subsection (1)(b), or

(b) if there has been more than one such person, the last before the buyer acquired asset X.

(6) In this section references to asset X include—

(a) two or more assets which together make up asset X, and

(b) one asset from which, or two or more assets from the combination of which, asset X is derived.

(7) For the purposes of subsection (4), if the previous trader incurred expenditure on the acquisition or bringing into existence of one or more assets from which asset X is derived, QE is so much of that expenditure as—

(a) was qualifying expenditure for the purposes of this Part, and

(b) is just and reasonable to attribute to asset X;

and a similar apportionment is to be made to arrive at A and B.

(8) This section does not affect any expenditure that is treated as qualifying expenditure on mineral exploration and access under—

• section 407(5) (acquisition of mineral asset owned by previous trader), or

• section 408(2) (acquisition of oil licence from non-trader).