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  • Tax

    Property valuation requirement?

    Hello,

    I have an accountancy query regarding the value of my property.

    Am I required (by the HMRC) to revalue my property every so often to make sure the correct value is in the Balance Sheet - or is it voluntary? I do not see the point of revaluing my property apart from getting an idea of potential Capital Gains Tax when selling it or to remortgage.

    Would it be different if I owned the property in a limited company?

    Thanks for any help!

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    No, you are not required to revalue.  Indeed, my understanding is that you cannot revalue the property for balance sheet purposes at all for companies (as it's not in accordance with UK GAAP).

    Where did you get the idea about revaluation?

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    Under frs102 companies need to include investment property at market value and include a provision for deferred tax at revaluation

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA


    Hello Rassle,

    Thank you for your reply. That's what I thought.

    I was discussing it with my accountant and he mentioned that I should revalue it ever so often and the increase in value would be recorded on a separate Fixed asset account to track the increase in value. Very confusing..

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    Hi Michael

    There is no requirement from HMRC to revalue your property each year.

    The regulation you are referring to strictly applies to all accounts but is generally is only enforced with Limited Companies and can be found in FRS 102 section 16 (Financial Reporting Standard 102) and is nothing to do with HMRC.  The accounting standard requires that for an Investment Property to be shown as such on the Balance Sheet of the accounts it must be stated each year at 'Fair Value'.  In arriving at this value you do not have to go to unreasonable expense or time.  Accordingly using items such as mortgage valuations or Zoopla and Rightmove are where I direct clients to look in order to arrive at a 'Fair Value'.  The increased (or decreased if the property has gone down in value) value of the property is taken to the profit and loss account but does not attract any tax because it is a theoretical gain and HMRC cannot tax revaluations of property or any other asset.  Since it is a theoretical gain you cannot take it out of the company as a dividend.  Accordingly so that clients do not get confused by the figure it is normal to move it to a Revaluation Reserve. 

    If you do not review the fair value each year then the property must be shown as normal Freehold Property in the accounts.  This would then mean that you would have to depreciate the property each year which would affect the amount you can take out as dividends.  The only way that property such as this in the accounts can be revalued is by a professional valuation which must then be done every three years and is expensive.  So again I avoid this and recommend that clients arrive at a fair value each year.

    I hope the above answers your question and puts your mind to rest.

    Regards

    Nigel

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    Nigel Reynolds FCCA CMgr FCMI

    Property Tax Specialist

    Reynolds and Co

    http://www.reynoldsandco.co.uk


    Much appreciated Nigel, I'll go ahead with your recommendation.

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    Interesting to read, thank you Nigel.

    I have a follow up questions (which probably is a pure accountancy question). What accounts do I use when selling my property? My assumptions below:

    1. Debit the the asset account with the difference between the sales price and the asset account (purely to get the account right) and credit the asset revaluation account

    2. Debit my current account with the actual sales price and counter credit my property asset account (which will not be the original purchase value the last recorded fair value?)

    3. What should i do with the property valuation account - can it just be wiped clean?

    4. Finally, the capital gains tax would in essence be the revaluation account multiplied by 19% (19% as a limited company) would be credit from my current account to my tax liabilities account.

    Have I understood it correctly?

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    Hi MattBake

    The answer to your accountancy question is that in the P&L account you create an account Profit/(Loss) on sale of assets.  The proceeds of the sale get credited to that accounts.  You then Credit the asset account for the cost or fair value (if you have followed FRS102) of the property and debit Profit/(loss) on disposal account.  With the increased value you debit Revaluation Reserve Account with the amount of increased fair value on the property and credit Profit/(Loss) on disposal account.  The resulting figure is the true historical gain or loss on sale of the property and the figure which is subject to CGT.

    Regards

    Nigel

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    Nigel Reynolds FCCA CMgr FCMI

    Property Tax Specialist

    Reynolds and Co

    http://www.reynoldsandco.co.uk