Capital Gains & Other Taxes Manual - Section 3 - Part 2 : Mineral Extraction Allowances

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3.20 General

3.21 Assistance to Inspectors of Taxes

3.22 Undeveloped Market Value

3.23 Provisions Relating to Buildings or other Structures on the Land

3.24 Resale Reflecting Little or No Mineral Value

3.25-29 Reserved

Part 2 : Mineral Extraction Allowances

3.20 General

The current provisions are contained within Part IV of the CAA 1990.

The main features of these allowances are:

  • a writing-down allowance of 10% per annum for qualifying expenditure on the acquisition of minerals or rights over them, and a rate of 25% per annum in relation to all other qualifying expenditure (s.98);
  • relief to commence generally when the expenditure is incurred, whether or not mineral planning permission has been granted or applied for;
  • no relief for the land element of the interest;
  • a statutory definition of the 'undeveloped market value' (broadly the value of the surface land element) which is to be excluded from qualifying expenditure on the acquisition or disposal of mineral bearing land (s.110).

3.21 Assistance to Inspectors of Taxes

The assistance of the DV will be sought in all cases where an interest in land is acquired which represents expenditure on the acquisition of a mineral asset as defined in s.121(1). The request will normally be on Form 453 (see Appendix 2) and the DV will be asked for an opinion of the undeveloped market value of the subject land based on s.110(2) (see para 3.108 below). The Inspector will advise the DV of all relevant information including, in particular, the following:

  • a precise identification of the land in question including a copy of the site plan;
  • the date of acquisition (or alternatively the date when the value is required);
  • a description of the current state of development of the land including reference to any planning permission in force at the date of acquisition;
  • the treatment to be accorded to any building or structures existing on the land;
  • the taxpayer's suggested valuation together with details of any apportionment etc;
  • the nature of the interest together with details of any subsidiary interests or tenancies.

The DV may be asked to produce either a “not negotiated” or an “agreed” valuation.

3.22 Undeveloped Market Value

The definition of the undeveloped market value to be excluded from qualifying expenditure contained in s.110(2) is that "In relation to the acquisition of an interest in land, the undeveloped market value means the consideration which at the time of the acquisition the interest might reasonably be expected to fetch on a sale in the open market on the assumptions:-

  • that there is no source of mineral deposits on or in the land; and
  • that it is and will continue to be unlawful to carry out any development of the land other than:-
  • development which, at the time of the acquisition, has been or has begun to be l awfully carried out; and
  • any other development for which planning permission is granted by a development order which is made as a general order and is in force at that time."

This definition also applies where it becomes necessary to determine the undeveloped market value of an interest on a subsequent disposal of the land in question in accordance with s.112.

3.23 Provisions Relating to Buildings or other Structures on the Land

There are special provisions relating to any buildings or other structures situated on the relevant land.

i) S.110(4) states that where at the time of acquisition of the interest in land or at any time thereafter the undeveloped market value of the interest in land includes the value of any buildings or other structures and those buildings cease permanently to be used for any purpose then their value shall be included as qualifying expenditure for the allowance.

(ii) S.105(5) sets out expenditure not qualifying for allowances - this includes that relating to any building or structure provided for occupation by or for the welfare of workers, any expenditure on a building, where the whole of the building was constructed for use as an office or any expenditure on so much of a building or structure as was constructed for use as an office unless capital expenditure on the construction of the part of the building or structure constructed for use as an office was not more than one-tenth of the capital expenditure incurred on the construction of the whole building or structure.

In (i) above it is the "unrelieved value" of the buildings or structures that will be treated as qualifying expenditure. The "unrelieved value" is the value of the buildings or structures at the date of acquisition of the buildings or structures (without regard to any value properly attributable to the land on which the buildings or structures stand) less the net amount of any capital allowances received in this respect by the person incurring the expenditure.

Where the Inspector is satisfied that the buildings or structures have permanently ceased to be used for any purpose, the taxpayer will be asked to provide a valuation of them as at the date of acquisition of the land. In this situation, a further reference will be made to the DV by the Inspector requesting an opinion of value, as at the time of acquisition, of the buildings or structures on the land, but excluding any value attributable to the land on which the buildings or structures stand. The figure provided by the DV will then be the additional amount of qualifying expenditure, subject to any restriction under s.110(5).

3.24 Resale Reflecting Little or No Mineral Value

In a case of a resale reflecting little or no mineral value (ie it was mainly or wholly for some form of alternative development or tipping, etc.) the DV should consult the MV for advice as to any non-exhausted mineral value. Where the DV is advised that the remaining mineral value is nil or de minimis, the Inspector should be advised accordingly prior to the DV making the valuation.

3.25-29 Reserved

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