CG76792 | Wasting assets: computation: example 2: using the T(2) formula
From HM Revenue & Customs · Capital Gains Manual
TCGA92/S46
Mr S purchases from a descendant the copyright over the memoirs of a writer 20 years after the end of the year in which the writer died. That copyright is, therefore, a wasting asset since it now has a predictable life of fifty years, see CG76723. He pays the descendant £90,000 for it but does not expect it to have any residual value in fifty years’ time.
After five years, Mr S has to take action to prevent a breach of his copyright. This costs him £10,000 in allowable expenditure on legal fees.
He later sells after twenty years for £80,000.
The computation now becomes:
| £ | ||||||||||
| Disposal proceeds | 80,000 | |||||||||
| LESS | Acquisition cost [E(1)] | 90,000 | ||||||||
| Reduction as CG76791 | 36,000 | |||||||||
| Allowable cost | 54,000 | |||||||||
| Legal expenses [E(2)] | 10,000 | |||||||||
| T(1) - T(2) = 20 - 15 = 5 | ||||||||||
| L - [T(1) - T(2)] = 50 - 5 = 45 | ||||||||||
| E(2) x | = | 10,000 | x | = | 3,333 | |||||
| L - [T(1) - T(2)] | 45 | |||||||||
| 6,667 | ||||||||||
| Allowable expenditure | 60,667 | 60,667 | ||||||||
| Gain | 19,333 | |||||||||
NOTE. Companies and other concerns within the charge to Corporation Tax may be able to claim indexation allowance, see CG17200C.