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DT on a hived asset

How does Subsid account for the DT on the 'gain' made in Parent?

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Dec 19, P hives a property down to S (100% subsid) at an accounting profit but no gain/no loss tax base. Original cost = £1.3m, sale price £2.3m. Both P & S have a YE of June 20 & prepare under FRS102 s1A.

On transfer, in P, the historic reval & DT is reversed out.

On transfer, S records the asset at the £2.3m it paid. In S, there is a YE reval to £2.5m & DT accounted for. Should I be accrueing DT for the tax on the £1m gain in P? After all, it will be S paying that tax when they sell the property. Assuming so, would you have the £190k DT a debit to the P&L or RR? Presumably P&L as the corresponding £1m revaluation isn't in S's RR?

Thanks

Replies (12)

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Psycho
By Wilson Philips
16th Sep 2020 16:29

My vote - P&L tax charge

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Hallerud at Easter
By DJKL
16th Sep 2020 16:41

Is it not S that has the DT, it carries the asset at £2.5 with a tax cost of £1.3 so has DT on £1.2. Once the asset has gone from P how can P have any DT?

Thanks (0)
Replying to DJKL:
Psycho
By Wilson Philips
16th Sep 2020 16:58

I see what you mean but that’s not how I read the OP. For avoidance of doubt (or as someone else might have said, it’s “clearly obvious”) I was referring to S’s P&L

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
16th Sep 2020 17:07

Wilson, I was not querying your answer I was more querying the OP's suggestion of DT in P.

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Replying to DJKL:
Psycho
By Wilson Philips
16th Sep 2020 17:17

I'm the one not being clear. I read the OP's "in P" as a reference to the latent gain that had been sitting "in" P rather than recognising the D/T in P's accounts.

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Replying to Wilson Philips:
ALISK
By atleastisoundknowledgable...
16th Sep 2020 17:25

bingo

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
16th Sep 2020 17:59

I see- long day so I did not pick that up.

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Replying to DJKL:
ALISK
By atleastisoundknowledgable...
16th Sep 2020 17:24

My sentence 'Should I be accrueing DT for the tax on the £1m gain in P?' should have read 'Should S be carrying the DT relating to the uncrystalised taxable gain made by P?'. Not sure that even conveys what I mean.

At some point, S is going to have to pay £190k(Ed. rate changes etc) tax on the uncrystalised gain made by P. Should I have accounted for this DT on purchase of the property?

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My photo
By Matrix
16th Sep 2020 17:13

I don’t see how your proof of tax would work if you are charging DT on something which is not in the accounts. However financial reporting is not my forte.

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avatar
By Bobbo
16th Sep 2020 17:15

Perhaps the numbers have been simplified but given the substantial difference between the sale price of £2.3m (assuming this was fair value) and the historic cost of £1.3m, has this property been owned by P since prior to December 2017?

If so there is Indexation Allowance to consider which augments the tax base cost.

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Replying to Bobbo:
ALISK
By atleastisoundknowledgable...
16th Sep 2020 17:27

Sept 16, so marginal. Main uplift is due to repairs & tenanting the commercial property in an improving part of Manchester (we do have them).

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Replying to atleastisoundknowledgable...:
Hallerud at Easter
By DJKL
16th Sep 2020 17:59

Presume valued before the downturn in value when the tenants all leave as they no longer need their retail units/leisure units/offices etc. (Unless logistics warehouses in which case the value may well keep rising)

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