£25m oil tax break

The oil industry has welcomed a long-awaited boost granted by the#163;100m loophole. government which will save it up to £25m a year in capital gains tax.

After a long industry campaign, the Inland Revenue has finally announced an exten-sion of capital gains roll-over relief to UK oil licences – which give companies the right to explore and extract oil and gas. It is effective from the beginning of this month.

The move puts oil on a par with other industries which use roll-over relief to defer capital gains tax on one asset by buying another. Oil companies lost this right in 1987.

Enterprise Oil tax manager Paul Winfrow, who heads up an industry tax committee, said it had asked for the measure in the run-up to the Budget and that the industry was pleased it had been granted.

He pointed out the government felt granting roll-over relief was tax-neutral, as it encouraged reinvestment.

The Inland Revenue said: ‘The government’s action in bringing forward this measure will help safeguard the industry’s future and employment prospects.’

It added the move would also promote rationalisation by oil companies of their licences.

KPMG oil tax partner Derrick Parkes said: ‘This is a logical and overdue relief.’

However, he sounded a note of caution pointing out the Revenue continued to regard oil licences as ‘wasting assets’ which reduced their base costs in capital gains calculations, boosting the tax charge.

The Revenue also announced it was closing a tax avoidance loophole which could be costing it £100m a year.

Industry figures said the figure was an overestimate, but described the move as a justified removal of a tax loophole.

It allowed companies to avoid petroleum revenue tax, which is payable on tariff income earned by oil companies when they let rivals use assets such as pipelines.

According to the Revenue, companies could avoid the tax by structuring their interests to take advantage of the maze of rules governing it. Rules closing the loophole have been added to the Finance Bill.

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