The Repeal of Mineral Royalties Relief - Stephens Scown Lawyers ...

Mineral royalties relief was introduced in the 1970?s (when rates for income and corporation taxes were high) as an incentive to encourage mineral owners make minerals available for commercial exploitation. ?Mineral royalties were treated as having both an income and a capital element. ?The Government?s view is that, as tax rates are considerably lower than those when the relief was implemented, it is no longer needed.

The 2012 Finance Bill includes legislation to repeal the relief which allows 50% of mineral royalties received to be treated in the same way as a capital gain. More specifically, the provisions relating to tax relief for mines and minerals contained the Income Tax (Trading and Other Income) Act 2005, the Corporation Tax Act 2009 and the Taxation of Chargeable Gains Act 1992 are to be repealed.

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This relief allowed for half of eligible mineral royalties to be taxed at the generally lower rate on gains, leaving the remaining 50% subject to income or corporation tax. The relief is to be withdrawn in respect of the royalties received on or after 1 April 2013 for businesses subject to corporation tax and 6 April 2013 for businesses subject to income tax. After these operative dates, mineral royalties will be fully liable to corporation or income tax. This includes royalties received in respect of existing mineral leases and agreements.

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Landowners who receive mineral royalties can currently claim relief for the loss of value to the land in question. The losses are crystallised at the time the agreement or lease ends. The loss can either be relieved in the year the lease or agreement ends or carried back for up to 15 years and set off against any chargeable gains. The relief (in respect of this ?loss? element) will continue to be available to landowners with pre-April 2013 agreements. However, the lease or agreement must have been entered into before the operative dates.

This move is in line with the Government?s announcement in last year?s budget that it would repeal seven of the reliefs available under the Finance Act 2011 and that it would abolish a further 36 reliefs in the Finance Bill 2012. The main objective behind the various abolitions was to simplify the tax system. The Government aims to remove those reliefs which are deemed either no longer necessary, or have not achieved their policy justification.

The measure will apply to individuals and all sizes of business, although the Government estimates that the measure will affect less than 800 individuals or households but it is difficult to assess the impact on companies, as the precise numbers on the take up of the relief is unknown, however it is thought that approximately 700 mineral quarries are currently leased.

For more information visit the HM Revenue & Custom?s website: http://www.hmrc.gov.uk/tiin/tiin850.pdf

Disclaimer: The above is for information purposes only and should not be considered tax advice.? Stephens Scown LLP does not offer tax advice and if you have any queries or concerns you should contact your tax advisor or HM Revenue & Customs direct.

Philip joined the firm in 1997 as a trainee solicitor and qualified in 2000, becoming part of the commercial property team in his final training seat. Philip has three specialist practice areas, dealing with commercial landlord and tenant matters, strategic land development options and all aspects of the Licensing Act 2003. He became a partner of the firm in 2007.

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