I’ve got myself in an accounting / tax tangle and would greatly appreciate some input!
I’ve a client who has acquired a property on a 10 year operating lease. They are renovating the property and converting into separate units which they will sub let. They will not occupy the building themselves.
Proposal is FRS102 1a, but no accounts filed yet.
Should we should account for the lease as investment property, discounting for present value etc, and show on the balance sheet now for the full 10 years (discounted)? Any refurbishment costs to convert the building, also shown as additions to investment property.
Asset and accompanying creditor then written down over the 10 years. Will claim tax allowances on integral features, and will look at SBA as well.
No rent charge ever shown in the P&L on this basis? Therefore no CT deduction for the rent they are paying?
Is there an option to treat any other way - just showing improvements to property as capital, and expensing the rent as a P&L item, therefore making the rent tax deductible, given it’s an operating lease?
What if they adopt FRS105? They are eligible, and how would this change the accounting and tax treatment?
Managed to get myself tangled up here!!!