Fair value accounting under FRS 102 explained for investment property, shares and PPE by expert accountants in London. Tax, deferred tax & compliance guidance.
If you run a UK limited company and hold investment property, shares, or business premises, understanding how fair value works under FRS 102 is essential.
As experienced accountants in East London, we regularly advise property companies, SPVs, and small businesses on how fair value impacts:
Profit & loss
Distributable reserves
Deferred tax
Corporation tax planning
This guide explains the correct accounting treatment clearly and practically.
1. Investment Property (FRS 102 Section 16)
What qualifies as investment property?
Property held:
To earn rental income
For capital appreciation
Not for the company’s own use
Typical examples include:
Buy-to-let residential properties
Commercial rental buildings
Property SPVs
How is it measured?
Under FRS 102:
Measured at fair value at each reporting date
Changes in fair value go directly to profit & loss
No depreciation is charged
A revaluation reserve is not used
Journal Entry – Fair Value Gain
If market value increases by £60,000:
Dr Investment Property £60,000
Cr Fair Value Gain (P&L) £60,000Deferred Tax Requirement
Under FRS 102 Section 29:
A deferred tax liability must be recognised
Because fair value exceeds tax base (cost)
This reflects future corporation tax payable on disposal
Example at 25% tax rate:
Dr Tax Expense (P&L) £15,000
Cr Deferred Tax Liability £15,000👉 No immediate cash tax is payable — only deferred tax is recorded.
2. Shares and Financial Investments (FRS 102 Sections 11 & 12)
Companies often hold:
Listed shares
Unlisted equity investments
Bonds
Treatment depends on the type of instrument.
Basic Financial Instruments
Measured at amortised cost (no fair value gains).
Other Financial Instruments
Measured at fair value through profit & loss.
Journal example:
Dr Investment in Shares £10,000
Cr Gain on Revaluation of Investments (P&L) £10,000Key point:
Gains go to P&L
No revaluation reserve
Deferred tax applies if there is a temporary difference
3. Owner-Occupied Property (PPE – Section 17)
If the company uses the property in its business (e.g. office, warehouse), it is treated as Property, Plant & Equipment (PPE).
Companies can choose:
Cost model
Revaluation model
If the revaluation model is used:
Gains go to Other Comprehensive Income (OCI)
Credited to Revaluation Reserve
Deferred tax also recognised through OCI
The building must be depreciated
Journal example:
Dr Property (PPE) £50,000
Cr Revaluation Reserve £50,0004. Key Differences at a Glance
Asset TypeFair Value Gain Goes ToDepreciationDeferred Tax RequiredInvestment PropertyProfit & LossNoYes (through P&L)Shares (FV instruments)Profit & LossN/AYes (through P&L)PPE (Revaluation model)OCI / Revaluation ReserveYesYes (through OCI)
5. Why This Matters for Small Businesses
If you are searching for accountants near me or small business accountants in London, here is why this is important:
Investment property gains increase accounting profit
Deferred tax reduces retained earnings
Dividend planning must consider distributable reserves
Incorrect classification can distort financial statements
For property SPVs, the difference between FRS 105 and FRS 102 can significantly impact reported profits and tax planning.
Frequently Asked Questions (FAQ)
1. Is corporation tax payable when investment property is revalued?
No immediate corporation tax is payable on unrealised fair value gains. However, deferred tax must be recognised to reflect the future tax liability when the property is sold.
2. Do I need a professional valuation every year?
Not mandatory, but recommended if the property is material. Directors must ensure fair value is reliable and supportable.
3. Can I use a revaluation reserve for investment property?
No. Under FRS 102 Section 16, fair value movements go directly to profit & loss. A revaluation reserve is only used for PPE under Section 17.
4. Is depreciation charged on investment property?
No. Investment property measured at fair value is not depreciated.
5. What happens when the property is sold?
On disposal:
The cumulative fair value adjustments are reversed
The actual gain is calculated against tax base
Corporation tax becomes payable on the realised gain
6. Does this apply to small companies under Section 1A?
Yes. Section 1A reduces disclosures but does not change measurement rules. Investment property is still measured at fair value.
Final Thoughts
Fair value accounting under FRS 102 can significantly affect:
Reported profits
Tax planning
Dividend decisions
Balance sheet strength
If you operate a property company or hold investments through a limited company, professional advice is essential.
At S & B Accountants, our experienced accountants in East London support property investors and small businesses across London with FRS 102 compliance, deferred tax planning, and corporation tax optimisation.