How do I calculate deferred tax on re-valued property - where i have no 1982 valuation?

How do I calculate deferred tax on re-valued...

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Hi all

Under FRS102 we need to provide for deferred tax on property revaluations.

I have a company that was purchased by my client in 2010 that has a property (that was bought over 100 years ago) with historic cost in the accounts of £5mio and revalued up to £10mio. Cost is quite high as they have spent significant sums on the property over the last 10 years.

So, the easy thing to do with deferred tax is take 20% of the revaluation, 20%x £5mio = £1mio.

BUT, the deferred tax should be based on the taxable gain that would arise on sale, not just a straight line 20%of the revaluation reserve. 

As this is a pre 1982 property we therefore need a March 1982 done, in order to get a figure to index, in order to calculate the gain, to get the correct deferred tax figure. We also don't have sufficient information in order to know what the book cost was for this property in 1982.

What are people doing in these cases, I am guessing just taking 20% x Revaluation Reserve, as the client is not going to get a 1982 valuation done due to cost. 

Thanks

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By GW
20th Jul 2015 14:33

Points to consider

Materiality - how accurate does the valuation need to be given the current value is an estimate and the provision is a percentage of the difference between two estimates? - if the market value of the property increased in line with the RPI then there would be no taxable gain.

 

Some guidance on values can be obtained from here:

http://www.rics.org/uk/knowledge/glossary/1982-market-values-for-residen...

 

Can you identify the 1982 book value from the accounts filed at Companies House?

 

Can you use these to come up with an estimated 1982 value and how much would that value need to alter to create a material change in the deferred tax provision?

 

 

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