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HMRC internal manual

Capital Gains Manual

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

 

A wasting asset is purchased for £26,000. Suppose the asset
 

 

  • has a predictable life of 21 years,
  • has a scrap value of £1,000,
  • is used 40% of the time for business, and
  • qualifies for capital allowances on the business part.

If the asset is sold 7 years later in 1992 for £10,000 the computation is in two parts

NON-BUSINESS USE: This is the disposal of a wasting asset costing £15,600 (60% of £26,000) for £6,000 (60% of £10,000). The wasting asset restriction is, see CG76700+
 

  • 60% of (£26,000 - £1,000) = £15,000 x 5Yr/21yr = £5,000,

so the restricted allowable expenditure, the wasted cost, is
 

  • £15,600 - £5,000 = £10,600.

The loss is computed as follows
 

      £
       
  Disposal proceeds   6000
Less Wasted cost   10600
    Unindexed loss (4600)
Less Indexation (say) 10,600 x 0.3 3180
    Loss (7780)

 

BUSINESS USE: This is the disposal of a non-wasting asset costing £10,400 (40% of £26,000) for £4,000 (40% of £10,000). The disposal is at a loss so the allowable expenditure is restricted by the net capital allowances given £6,400, see CG15410+

The loss is computed as follows
 

 

        £
         
  Disposal proceeds     4000
Less Cost   10400  
  less Section 41 restriction   6400 4000
    Unindexed loss    
Less Indexation (say) 4,000 x 0.3   1200
    Loss   (1200)

 

The allowable loss accruing on the disposal is therefore
 

 

£7,780 + £1,200 = £8,980