B5.663 Taxation of mineral royalties
The provisions described in B5.662 apply to mineral royalties, which are included in the definition of rents for this purpose. This means that royalties are in general included in trading profits1, but in certain circumstances they may be assessed as property income2.
Where, exceptionally, the royalties are assessed as property income, the recipient may deduct sums incurred wholly and exclusively as expenses of management or supervision of those minerals3.
Before April 2013 a mineral royalty is treated for tax purposes as containing an 'income element' and a 'capital element', each consisting of a half of the royalty. The income element is treated as property income4 or trading profits5 (see above). The capital element is treated as a chargeable gain without any reduction of any kind6. However, this treatment was changed in relation to mineral royalties which a person is entitled to receive on or after 6 April 2013 (whether under an existing agreement or one entered into after that date for income tax and capital gains tax purposes) or which a company is entitled to receive on or after 1 April 2013 (whether under an existing agreement or one entered into after that date for corporation tax purposes, including on chargeable gains), and the whole mineral royalty is treated as income liable to income or corporation tax7.
At the end of the lease, a capital loss may still arise for mineral lease agreements entered into before 6 April 2013 (capital gains tax) or 1 April 2013 (corporation