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HMRC internal manual

Capital Gains Manual

Wasting assets: computation: using the formula T(1)/L


This instruction shows you how to use the T(1)/L formula to calculate how much allowable acquisition cost has been written off.  You work through the steps in number order:

  1. What is the length of time between acquisition and disposal?
  2. Call this T(1)
  3. What is the predictable life of the asset from the time of the acquisition?
  4. Call this L
  5. Calculate T(1)/L
  6. What is the allowable acquisition cost?
  7. Call this E(1)
  8. What is the predictable scrap or residual value?
  9. Call this S
  10. Calculate the expenditure to be wasted over the life of the asset: (E(1) – S).
  11. How much is the reduction in allowable expenditure up to the date of disposal?
  12. Calculate (E(1) – S) x T(1)/L
  13. Call this R(1)
  14. How much acquisition expenditure is allowable in computing the gain or loss on disposal?
  15. Calculate (E(1) – R(1))

There is an example at CG76791.

If the residual or scrap value of the asset is increased because of any enhancement expenditure you simply use that adjusted figure S in the above computation.  CG76777 tells you how to deal with the enhancement expenditure itself.