Carter Jonas' Minerals & Waste Management team has expressed serious concerns at proposals announced by George Osborne to abolish the special tax relief granted to those taxpayers receiving mineral extraction royalties.

The Chancellor announced in the Budget the Government’s intention to abolish a range of tax relief provisions, including those for mineral royalties.  The abolition was announced to be brought into effect via the 2012 Finance Bill following a period of consultation.

At present, HMRC treat half of each mineral royalty payment due to a landowner as liable for income tax, but the other half as a chargeable capital gain. 

Paul Malam, partner in the Minerals & Waste Management team said: “The present tax system for mineral royalties has been in place for a considerable period and recognises the unique nature of minerals extraction in that the asset is, naturally, destroyed and depleted over time.    Minerals are a “wasting asset”, meaning that they cannot be replaced once they are worked. This small announcement in yesterday’s budget could have a significant effect on the tax liabilities of those mineral landlords receiving royalties for extraction of their minerals.

“We are further concerned that this announcement is contrary to the advice given in the March 2011 report on the review of tax reliefs prepared by the Office Of Tax Simplification at HMRC.”

Carter Jonas will be monitoring developments with regard to the Finance Bill closely and expect consultation to commence in Autumn 2011.