Finance Act 1984

CHAPTER V U.K. OIL AND GAS INDUSTRY

77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F1 U.K.

Textual Amendments

F1 S. 77 repealed by Income and Corporation Taxes Act 1988 (c. 1), s. 844, Sch. 31

78 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F2 U.K.

Textual Amendments

F2 S. 78 repealed by Capital Allowances Act 1990 (c. 1), s. 164(4), Sch. 2

79 (1) This section applies where, on or after 13th March 1984 and in pursuance of a transfer by a participator in an oil field of the whole or part of his interest in the field, there is—

(a) a disposal of an interest in oil to be won from the oil field; or

(b) a disposal of an asset used in connection with the field;

and section 12 of the Oil Taxation Act 1975 (interpretation of Part I of that Act) applies for the interpretation of this subsection and the reference to the transfer by a participator in an oil field of the whole or part of his interest in the field shall be construed in accordance with paragraph 1 of Schedule 17 to the Finance Act 1980.

(2) In this section “disposal” has the same meaning as in the M1 Capital Gains Tax Act 1979 and “material disposal” means—

(a) a disposal falling within paragraph (a) or paragraph (b) of subsection (1) above; or

(b) the sale of an asset referred to in subsection (3) of section 278 of the Taxes Act (company ceasing to be a member of a group: notional sale and repurchase of asset acquired from another member) where the asset was acquired by the chargeable company (within the meaning of that section) on a disposal falling within one of those paragraphs.

(3) For any chargeable period (within the meaning of the Taxes Act) in which a chargeable gain or allowable loss accrues to any person (in the following provisions of this section referred to as “the chargeable person") on a material disposal (whether taking place in that period or not), subject to subsection (7) below there shall be aggregated—

(a) the chargeable gains accruing to him in that period on such disposals, and

(b) the allowable losses accruing to him in that period on such disposals,

and the lesser of the two aggregates shall be deducted from the other to give an aggregate gain or, as the case may be, an aggregate loss for that chargeable period.

(4) For the purposes of capital gains tax and corporation tax in respect of capital gains,—

(a) the several chargeable gains and allowable losses falling within paragraphs (a) and (b) of subsection (3) above shall be left out of account; and

(b) the aggregate gain or aggregate loss referred to in that subsection shall be treated as a single chargeable gain or allowable loss accruing to the chargeable person in the chargeable period concerned on the notional disposal of an asset; and

(c) if in any chargeable period there is an aggregate loss, then, except as provided by subsection (6) below, it shall not be allowable as a deduction against any chargeable gain arising in that or any later period, other than an aggregate gain treated as accruing in a later period by virtue of paragraph (b) above (so that the aggregate gain of that later period shall be reduced or extinguished accordingly); and

(d) if in any chargeable period there is an aggregate gain, no loss shall be deducted from it except in accordance with paragraph (c) above; and

(e) without prejudice to any indexation allowance which was taken into account in determining an aggregate gain or aggregate loss under subsection (3) above, no further indexation allowance shall be allowed on a notional disposal referred to in paragraph (b) above.

(5) Where, in accordance with subsection (3) above, the chargeable person has an aggregate gain, that gain . . . F3 and his ring fence income (if any) for the chargeable period concerned together constitute, for the purposes of this section, his ring fence profits for that period . . . F4

(6) In any case where—

(a) by virtue of subsection (4)(b) above, an aggregate loss is treated as accruing to the chargeable person in any chargeable period, and

(b) before the expiry of the period of two years beginning at the end of the chargeable period concerned, the chargeable person makes a claim under this subsection,

the whole, or such portion as is specified in the claim, of the aggregate loss shall be treated for the purposes of capital gains tax or corporation tax, as the case may be, as an allowable loss arising in that chargeable period otherwise than on a material disposal.

(7) In any case where a loss accrues to the chargeable person on a material disposal made to a person who is connected with him (within the meaning of section 63 of the M2 Capital Gains Tax Act 1979)—

(a) the loss shall be excluded from those referred to in paragraph (b) of subsection (3) above and, accordingly, shall not be aggregated under that subsection; and

(b) except as provided by subsection (8) below, section 62 of that Act shall apply in relation to the loss as if, in subsection (3) of that section (losses on disposals to a connected person to be set only against gains on disposals made to the same person at a time when he is a connected person), any reference to a disposal were a reference to a disposal which is a material disposal; and

(c) to the extent that the loss is set against a chargeable gain by virtue of paragraph (b) above, the gain shall be excluded from those referred to in paragraph (a) of subsection (3) above and, accordingly, shall not be aggregated under that subsection.

(8) In any case where—

(a) the losses accruing to the chargeable person in any chargeable period on material disposals to a connected person exceed the gains accruing to him in that chargeable period on material disposals made to that person at a time when they are connected persons, and

(b) before the expiry of the period of two years beginning at the end of the chargeable period concerned, the chargeable person makes a claim under this subsection,

the whole, or such part as is specified in the claim, of the excess referred to in paragraph (a) above shall be treated for the purposes of section 62 of the Capital Gains Tax Act 1979 as if it were a loss accruing on a disposal in that chargeable period, being a disposal which is not a material disposal and which is made by the chargeable person to the connected person referred to in paragraph (a) above.

(9) Where a claim is made under subsection (6) or subsection (8) above, all such adjustments shall be made, whether by way of discharge or repayment of tax (including capital gains tax) or otherwise, as may be required in consequence of the operation of that subsection.

(10) In subsection (5) above “ring fence income” means income arising from oil extraction activities or oil rights, within the meaning of [F5 Chapter V of Part XII of the Taxes Act 1988].

Textual Amendments

F3 Words repealed by Finance (No. 2) Act 1987 ss. 76(3)(a), 104(4), Sch. 9 Part II

F4 Words repealed by Income and Corporation Taxes Act 1988 (c. 1), s. 844, Sch. 31

F5 Words substituted by Income and Corporation Taxes Act 1988 (c. 1), Sch. 29 para. 32

Marginal Citations

M1 1979 c. 14.

M2 1979 c. 14.

80 Replacement of business assets used in connection with oil fields. U.K.

(1) If the consideration which a person obtains on a material disposal is applied, in whole or in part, as mentioned in subsection (1) of section 115 or section 116 of the M3 Capital Gains Tax Act 1979 (replacement of business assets), that section shall not apply unless the new assets are taken into use, and used only, for the purposes of the ring fence trade.

(2) Subsection (1) above has effect notwithstanding subsection (7) of the said section 115 (which treats two or more trades as a single trade for certain purposes).

(3) Where the said section 115 or the said section 116 applies in relation to any of the consideration on a material disposal, the asset which constitutes the new assets for the purposes of that section shall be conclusively presumed to be a depreciating asset, and section 117 of the Capital Gains Tax Act 1979 (special rules for depreciating assets) shall have effect accordingly, except that—

(a) the reference in subsection (2)(b) of that section to a trade carried on by the claimant shall be construed as a reference solely to his ring fence trade; and

(b) subsections (3) to (6) of that section shall be omitted.

(4) In any case where sections 115 to 117 of the Capital Gains Tax Act 1979 have effect in accordance with the preceding provisions of this section, the operation of section 276 of the Taxes Act (replacement of business assets by members of a group) shall be modified as follows:—

(a) only those members of a group which actually carry on a ring fence trade shall be treated for the purposes of those sections as carrying on a single trade which is a ring fence trade; and

(b) only those activities which, in relation to each individual member of the group, constitute its ring fence trade shall be treated as forming part of that single trade.

(5) In this section—

(a) “material disposal” has the meaning assigned to it by section 79 above; and

(b) “ring fence trade” means a trade consisting of either or both of the activities mentioned in paragraphs (a) and (b) of subsection (1) of section [F6 492 of the Taxes Act 1988].

Textual Amendments

F6 Words substituted by Finance Act 1988 (c. 39), s. 146, Sch. 13 paras. 22, 25

Marginal Citations

M3 1979 c. 14.

81 Disposals by non-residents etc. of assets used in connection with exploration and exploitation activities. U.K.

(1) Section 38 of the Finance Act 1973 (territorial extension of charge to income tax, capital gains tax and corporation tax) shall be amended in accordance with this section.

(2) After subsection (3) there shall be inserted the following subsections:—

“(3A) Gains accruing on the disposal of—

(a) exploration or exploitation assets which are situated in a designated area, or

(b) unquoted shares deriving their value or the greater part of their value directly or indirectly from exploration or exploitation assets situated in the United Kingdom or a designated area or from such assets and exploration or exploitation rights taken together,

shall be treated for the purposes of the Capital Gains Tax Act 1979 as gains accruing on the disposal of assets situated in the United Kingdom.

(3B) For the purposes of this section, an asset disposed of is an exploration or exploitation asset if either—

(a) it is not a mobile asset and it is being or has at some time within the period of two years ending at the date of the disposal been used in connection with exploration or exploitation activities carried on in the United Kingdom or a designated area; or

(b) it is a mobile asset which, at some time within the period of two years ending at the date of the disposal, has been used in connection with exploration or exploitation activities so carried on and is dedicated to an oil field in which the person making the disposal, or a person connected with him within the meaning of section 533 of the Taxes Act, is or has been a participator;

and expressions used in paragraphs (a) and (b) above have the same meaning as if those paragraphs were included in Part I of the Oil Taxation Act 1975.

(3C) In paragraph (b) of subsection (3A) above “unquoted shares" means shares other than those which are quoted on a recognised stock exchange (within the meaning of the Corporation Tax Acts); and references in subsections (4) and (5) below to exploration or exploitation assets include references to unquoted shares falling within that paragraph.”

(3) In subsection (4) (which, among other things, provides that certain gains are to be treated as gains accruing on the disposal of trade assets) after the words “such rights" there shall be inserted the words “or of exploration or exploitation assets."

(4) In subsection (5) (inter-company disposals) after the word “rights" there shall be inserted the words “or exploration or exploitation assets".

(5) This section has effect in relation to disposals on or after 13th March 1984.