CG15453 - 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	0
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