Today, the 19th of July 2013, the UK Government has unveiled draft tax breaks for shale gas investment. The new tax allowance will mean that tax payable on income from shale production will be a fraction of traditional oil and gas taxation, creating a tax rate of 30% as opposed to the current 62% taxation for oil and gas companies.

The draft bill is subject to a three month consultation. The Treasury confirmed that these tax benefits would not just be a temporary measure and that it hopes the changes will have worldwide impact. Mr Osborne in the Treasury statement commented ‘We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits,’ and also that ‘[t]his new tax regime, which I want to make the most generous for shale in the world, will contribute to that.’ It is likely that the new tax regime will enter the Finance Bill in 2014.

This latest announcement is in-keeping with the Government’s encouragement of unlocking shale gas reserves in the UK and reducing reliance on natural gas imports, with a hope to creating jobs and keeping energy bills low. Many within the shale gas industry viewed tax incentives as vital for encouraging participation given the high costs associated with exploration. The Government is hoping that such significant financial benefits will lead to further involvement, such as Centrica’s purchase of part of Cuadrilla’s Bowland Basin interest, from investors, kick-starting a potentially promising industry in the UK.

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Please also see our law-nows on previous Government shale gas announcenments and the 2013 Budget.