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Property classification

12 September 2007
Issue: 4125 / Categories: Forum & Feedback

One of our clients is involved in property development and has been obliged to prepare its financial statements in accordance with international accounting standards. The adoption of these standards resulted in the reclassification of a number of developments from stock to fixed assets as either assets under construction or investments.

The transfers took place in the accounts at cost, which was significantly lower than market value.

One of our clients is involved in property development and has been obliged to prepare its financial statements in accordance with international accounting standards. The adoption of these standards resulted in the reclassification of a number of developments from stock to fixed assets as either assets under construction or investments.

The transfers took place in the accounts at cost which was significantly lower than market value.

HMRC have opened an enquiry on the basis that following the precedents in Sharkey v Wernher and Petrotim Securities Limited v Ayres for tax purposes the transfer should instead be treated as taking place at market value rather than cost. This would create a substantial tax liability.
The precedents do not appear directly relevant as Sharkey involved an appropriation of stock from a business to a personal hobby and Petrotim involved an actual disposal between associated companies whereas...

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