Mining royalties – income or capital
A recent Scottish case heard at the Court of Session looked at the issue of mining royalties. In this case, the taxpayer had granted wayleaves to various mining companies which allowed for rights to drill, prospect and explore for coal, extract coal by open cast mining and to disturb other minerals for the purpose of mining coal in return for payment.
The issue at hand was the application of sections 119 and 122 ICTA 1988 to payments received for these rights. These sections allow for relief from income tax for receipts from "mineral royalties" arising from a "mineral lease or agreement" and for such receipts to be taxed as capital gains tax under TCGA 1992. The Court of Session had to decide whether the payments were made under mineral leases and whether the payments were mineral royalties.
The Special Commissioner who had allowed the taxpayer’s initial appeal held that the taxpayer’s income was from mineral royalties within section 122 ICTA 1988. The Court of Session ultimately upheld the decision and confirmed the ruling of the Special Commissioner.