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claim a capital loss for the decrease in value of the land after the minerals had been extracted and this will also be withdrawn.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 rent together with a licence in consideration of a lump sum to remove the minerals. This lump sum receipt should be wholly liable to CGT. In addition it may even be possible to limit the tax rate to 10% if a claim for entrepreneurs' relief can be made, although this does require a suitable business disposal to take place as well.

The one possible disadvantage to a Treasury arrangement is not tax driven, but is a commercial issue. The lump sum payment has to be negotiated before the exact quantity of minerals is established and it may be that the agreed lump sum is an under or over estimate. The uncertainty of this variable will need to be borne in mind in the negotiation between the landowner and the extraction company.

In conclusion, landowners with mineral bearing land need to consider their options as soon as possible before mineral royalties relief is abolished.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.