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Special rules apply to short life assets. If the expected useful life of the asset is no more than eight years from the end of the chargeable period in which the expenditure was incurred, an election can be made to treat the asset as a short life asset.

Where such an election is made, the asset is given its own pool. Writing down allowances are given at the main pool rate of 18%. When the asset is sold, balancing allowances or charges are determined by reference to the written down value of the single asset pool. If the asset has not been disposed of by the eighth anniversary of the end of the chargeable period in which it was acquired, the written down value of the single asset pool is transferred to the main rate pool. A short life election could be considered if the AIA has been used up or to prevent a large balancing charge on disposal.

Example:
Jessica has purchased new computer equipment for her business, which cost £2,000. She expects to keep the computer for three years. She does not wish to claim the AIA and makes a short life asset election.

After two years the written down value on the pool is £1,345. The following year she sells the computer equipment for £800. By making a short life asset election she is entitled to a balancing allowance of £545 (£1,345 less disposal proceeds of £800) on disposal.

Without the election, the disposal proceeds would have been swallowed up by the main rate pool. Had the AIA been claimed, a balancing charge of £800 would have arisen on the sale.