Mineral Royalties Relief - It's Not Set In Stone

In April 2013 the Government will abolish a very important relief which may be of little significance to the vast majority of taxpayers, but for land owners with mineral bearing land, its abolition means they need to act quickly.

Since 1970, mineral royalties relief has taxed 50% of royalties from mineral extraction to income tax and 50% to capital gains tax (CGT), but in future the whole amount will be taxed as income. In addition, there was also the ability to claim a capital loss for the decrease in value of the land after the minerals had been extracted and this will also be withdrawn.

A mineral royalties lease essentially means that the landowner will be paid an agreed amount per ton of extracted minerals. With current CGT rates at 28% compared the highest income tax rate of 45% (from next April) this will mean a significantly increased tax liability.

For those landowners who have already entered into a contract the current relief will continue until April 2013. The advice is simple, if the landowner is currently in negotiation they should formalise matters and exchange contracts before next April so at least some of the receipts are liable to CGT.

The alternative may be to enter into a 'Treasury arrangement'. Here, the landowner enters into an arrangement under which he grants a lease of the surface for a small...