Dual rate taxed valuation: a more rational approach
| Published date | 02 March 2012 |
| Pages | 105-114 |
| Date | 02 March 2012 |
| DOI | https://doi.org/10.1108/14635781211206878 |
| Author | Nelson Chan,Norman Harker |
| Subject Matter | Property management & built environment |
Dual rate taxed valuation: a more
rational approach
Nelson Chan and Norman Harker
University of Western Sydney, Sydney, Australia
Abstract
Purpose – The purpose of this paper is to re-visit the problems of taxation consequences of sinking
fund in the UK and to look at what is believed to be the only rational reason for using the dual rate
adjusted for tax method variant.
Design/methodology/approach – The structure of this paper is: valuing a freehold and a leasehold
interest by the single rate gross and net of tax approaches to show the logic that works with freehold
valuation interest may not work with leasehold valuation; exploring the tax impacts on sinking fund;
resolving the taxation issue of sinking fund; demonstrating the solution to the “double sinking fund
problem” by the Greaves method and the single rate net of tax approach; and exploring the future of
the dual rate theory.
Findings – The paper confirms that the traditional method is not satisfactory, even after the
modifications made by the various methods mentioned above. The single rate net of tax approach is
proved to meet all expectations and can be regarded as a more rational approach to the dual rate method.
Practical implications – Valuers of the “UK School” might consider that not only should dual rate
valuation be regarded as defunct, but also that the more appropriate approach might be to move to a
net of taxation approach.
Originality/value – This paper is the original work of the authors.
Keywords United Kingdom,Property investment, Accountingvaluations, Investments, Freehold,
Leasehold, Taxationconsequences
Paper type Research paper
Introduction
Mackmin (2008) provides a detailed review of the dual rate valuation method and
suggests that this method is defunct because of the flawed “reinvestment principle”,
and other shortcomings summarised by Baum et al. (2006). The authors of this paper
fully agree with this proposition. This paper does not intend to further investigate the
problems with the dual rate valuation method. It concentrates on what is believed to be
the only rational reason for using the Dual Rate adjusted for tax method variant. It is
submitted that this method has the logic of allowing valuers to retain the gross of tax
remunerative rate for the purposes of bring cross-comparability with valuations of
freehold or long leasehold interests.
The structure of this paper is:
.Valuing a freehold and a leasehold interest by the single rate gross and net of tax
approaches to show the logic that works with freehold valuation interest may not
work with leasehold valuation.
.Exploring the tax impacts on sinking fund.
.Resolving the taxation issue of sinking fund.
.Demonstrating the solution to the “Double Sinking Fund Problem” by the
Greaves method and the Single Rate Net of Tax approach.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
Dual rate taxed
valuation
105
Journal of Property Investment
& Finance
Vol. 30 No. 2, 2012
pp. 105-114
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635781211206878
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