CG76792 - Wasting assets: computation: example 2: using the T(2) formula

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	T(2)	=	10,000	x	15	=	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 CG17200+.