Calculate B

Calculate B

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Client granted a 26 year lease (agricultural land) out of a freehold, for a premium + annual rent.

In calculating the base cost to deduct from the CGT element of the premium I have two problems.

1) Determining the value of the reversionary interest in the land, and

2) Determining the value of the right to receive the annual rent.

The total of these two elements make up "B" in your part disposal A/(A'+B) calc.

In the examples in CG70962 these are given.

If the current value of the land is (say) £10K per acre, how should I convert that to the current value of a reversionary interest in 26 years time?

The annual rent is £700.  Excel will tell me the NPV of 26 years rent, provided that I give it a rate of return.  I would expect a consistent and published percentage to be used for this; Any suggestions?

Thanks

With kind regards

Clint Westwood

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Portia profile image
By Portia Nina Levin
08th Jan 2015 11:14

Do not ask accountants

Ask a chartered surveyor!

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By nogammonsinanundoubledgame
08th Jan 2015 13:35

Point

That said, the second question is a mechanical calculation for which I am missing just one variable: the rate of interest to apply.  I would expect the DV to have a rate in mind that they would apply, and I would expect accountants (who deal in such matters) to be aware of it.

I agree that the first question may be beyond our tiny brains.

With kind regards

Clint Westwood

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