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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Capital allowances: wasting assets qualifying in part for: example

TCGA92/S41, TCGA92/S45(3), TCGA92/S46

Miss F acquires a double cab pick-up truck for £26,000. A double cab pick-up truck is machinery and so it is a wasting asset under TCGA92/S44(1)(c). Suppose that the double cab pick-up truck:

  • has a predictable life of 20 years,
  • has a scrap value of £200,
  • is used 90% of the time for business, and
  • qualifies for capital allowances on the business part.

If the asset is sold 7 years later for £4,000 the computation is in two parts:

Non-business use part

The wasting asset was used for a non-business purpose for 10% of the time.

First apportion the cost (10% of £26,000 = £2,600) and the disposal proceeds (10% of £4,000 = £400).

The loss is computed as follows:

  £
   
Disposal proceeds       400
less Wasted Cost \_(2,600)\_
Loss  (2,200)

 

However the double cab pick-up is a chattel.  TCGA92/S45(1) will apply to this portion of the calculation and the loss will be exempt (CG15445).

NOTE If the asset hadn’t been a chattel (e.g. the asset was intangible or was fixed rather than moveable) then TCGA92/S46 would have applied (see CG76775).  The restricted allowable loss would have been as follows:

  1. the cost to be wasted is the allowable expenditure less scrap value

£26,000 - £200 = £25,800

  1. calculate the non-business proportion of the cost to be wasted

£25,800 x 10% = £2,580

  1. calculate the restriction on the non-business proportion of the cost

£2,580 x 7Yr/20yr = £903.

The restricted allowable expenditure, the wasted cost, is the non-business proportion of the cost less the restriction:

 

£2,600 - £903 = £1,697.

 

The loss is then computed as follows:

  £
   
Disposal proceeds      400
less Wasted Cost \_(1,697)\_
Loss  (1,297)

 

Business use part

The wasting asset was used for business for 90% of the time.

First apportion the cost (90% of £26,000 = £23,400) and the disposal proceeds (90% of £4,000 = £3,600).

The disposal will result in a loss so section 41 applies to restrict the allowable expenditure by the net capital allowances that have been or may be given of £19,800, (see CG15410 onwards).

 

The loss is computed as follows:

    £
     
Disposal proceeds      3,600
less Cost 23,400 – 19,800 (3,600)
Loss           (0)

 

The total allowable loss accruing on the disposal is therefore NIL.