Finance Act 1988

62 Disposals of oil licences relating to undeveloped areas. U.K.

(1) If, at the time of the material disposal of a licence, the licence relates to an undeveloped area, then, to the extent that the consideration for the disposal consists of—

(a) another licence which at that time relates to an undeveloped area or an interest in another such licence, or

(b) an obligation to undertake exploration work or appraisal work in an area which is or forms part of the licensed area in relation to the licence disposed of,

the value of that consideration shall be treated as nil for the purposes of the M1 Capital Gains Tax Act 1979 (in this section referred to as “the 1979 Act”) and the appropriate legislation relating to capital allowances.

(2) For the purposes of this section a “material disposal” is a disposal (which includes a part disposal) which occurred or occurs before or after the passing of this Act, other than,—

(a) so far as concerns the 1979 Act, a disposal which is made otherwise than by way of a bargain at arm’s length; and

(b) so far as concerns the appropriate legislation relating to capital allowances, a disposal in relation to which [F1 sections 157 and 158 of the Capital Allowances Act 1990] (sales between connected persons etc.) has effect.

(3) If a material disposal of a licence which, at the time of the disposal, relates to an undeveloped area is part of a larger transaction under which one party makes to another material disposals of two or more licences, each of which at the time of the disposal relates to an undeveloped area, the reference in subsection (1)(b) above to the licensed area in relationto the licence disposed of shall be construed as a reference to the totality of the licensed areas in relation to those two or more licences.

(4) Where a claim is made under section 68(5)(b) of the M2 Finance Act 1985 (claims to substitute, for indexation purposes, a 1982 market value for cost on certain disposals between 1st April 1985 and 5th April 1988) for the purpose of computing the indexation allowance on a material disposal of a licence which, at the time of the disposal, relates to an undeveloped area and, accordingly, it is assumed for that purpose that, on 31st March 1982, the licence concerned was sold and immediately reacquired, then, for that purpose, section 34 of the 1979 Act (effect of capital allowances on allowable expenditure) shall apply in relation to any capital allowance—

(a) made in respect of the expenditure actually incurred in providing the licence, and

(b) so made for an accounting period ending on or after 1st April 1982,

as if the allowance (or, if the accounting period begins before that date, a time-apportioned part of the allowance) were made in respect of expenditure which, on that assumption, was incurred in reacquiring the asset on 31st March 1982.

(5) In relation to a material disposal of a licence which at the time of the disposal relates to an undeveloped area, being a disposal—

(a) which is a part disposal of the licence in question, and

(b) part but not the whole of the consideration for which falls within paragraph (a) or paragraph (b) of subsection (1) above,

section 35 of the 1979 Act (apportionment of expenditure etc. on part disposals) shall not apply unless the amount or value of the part of the consideration which does not fall within one of those paragraphs is less than the aggregate of the amounts which, if the material disposal were a disposal of the whole of the licence rather than a part disposal, would be—

(i) the relevant allowable expenditure, as defined in section 86 of the M3 Finance Act 1982 (indexation allowance on certain disposals); and

(ii) the indexation allowance on the disposal.

(6) Where section 35 of the 1979 Act has effect in relation to such a disposal as is referred to in subsection (5) above, it shall have effect as if, for subsection (2) thereof, there were substituted the following subsection—

“(2) The apportionment shall be made by reference to—

(a) the amount or value of the consideration for the disposal on the one hand (call that amount or value A), and

(b) the aggregate referred to in subsection (5) of section 62 of the Finance Act 1988 on the other hand (call that aggregate C),

and the fraction of the said sums allowable as a deduction in computing the amount of the gain (if any) accruing on the disposal shall be—

and the remainder shall be attributed to the part of the property which remains undisposed of.”

(7) In the case of a material disposal—

(a) which falls within subsection (5) above, and

(b) in respect of which a claim is made under section 68(5)(b) of the M4 Finance Act 1985,

the claim shall be treated also as having effect for the purpose of determining the indexation allowance referred to in sub-paragraph (ii) of subsection (5) above on the notional material disposal of the whole of the licence referred to in that subsection.

Textual Amendments

F1 Words in s. 62(2)(b) substituted by Capital Allowances Act 1990 (c. 1, SIF 63:1), s. 164(3), Sch. 1 para. 9(1).

Marginal Citations

M1 1979 c. 14.

M2 1985 c. 54.

M3 1982 c. 39.

M4 1985 c. 54.