Profits method of rating valuation - Revision history

Designing Buildings at 09:56, 28 September 2020

2020-09-28T09:56:03Z

← Older revision		Revision as of 09:56, 28 September 2020
Line 23:		Line 23:
	{\|		{\|
	\|width="33%"\|		\|width="33%"\|
−	~~\|width="33%"\|£~~
−	~~\|width="33%"\|£~~
−	\|-
−	~~\|Gross receipts~~

		+	\|width="33%"\| £
		+	\|width="33%"\| £
		+	\|-
		+	\|
		+	Gross receipts
	Less purchases		Less purchases

	Gross profit		Gross profit
	\|		\|
		+
	\|		\|
−	\|-
−	~~\|Less~~

		+	\|-
		+	\|
		+	Less
	* Working expenses		* Working expenses
	* Sinking fund to replace structure		* Sinking fund to replace structure
Line 41:		Line 44:
	* Net profit = Divisible balance		* Net profit = Divisible balance
	\|		\|
−	\|£	+
		+	\| £
	\|}		\|}

Line 56:		Line 60:

	{\|		{\|
−	\|width="50%"\|Receipts:	+	\|width="50%"\|
−		+	Receipts:
	Restaurant		Restaurant

Line 97:		Line 101:

	Loan interest		Loan interest
−	\|width="50%"\|£	+	\|width="50%"\|
−		+	£
	113,420		113,420

Line 154:		Line 158:

	{\|		{\|
−	\|width="33%"\|Valuation	+	\|width="33%"\| Valuation
−	\|width="33%"\|£	+	\|width="33%"\| £
−	\|width="33%"\|£	+	\|width="33%"\| £
	\|-		\|-
−	\|1 Calculate net profit	+	\|
−		+	1 Calculate net profit
	Gross receipts		Gross receipts

Line 193:		Line 197:

	Net trading profit = divisible balance		Net trading profit = divisible balance
−	\|.	+	\|
−		+	.
	.		.

Line 226:		Line 230:

	10,990		10,990
−	\|.	+	\|
−		+	.
	491,150		491,150

Line 262:		Line 266:
	79,510		79,510
	\|-		\|-
−	\|2 Divide balance	+	\|
−		+	2 Divide balance
	Less Interest on tenant’s capital		Less Interest on tenant’s capital

Line 279:		Line 283:

	Divisible balance		Divisible balance
−	\|.	+	\|
−		+	.
	.		.

Line 292:		Line 296:

	310,000		310,000
−	\|.	+	\|
−		+	.
	.		.

Line 334:		Line 338:

	{\|		{\|
−	\|width="50%"\|.	+	\|width="50%"\|
−		+	.
	Interest on capital		Interest on capital

	Remuneration and risk		Remuneration and risk
−	\|width="50%"\|£	+	\|width="50%"\|
−		+	£
	21,700		21,700

Line 355:		Line 359:
	This article was created by --[[User:University_College_of_Estate_Management_(UCEM)\|University College of Estate Management (UCEM)]] 17:09, 6 December 2012 (UTC)		This article was created by --[[User:University_College_of_Estate_Management_(UCEM)\|University College of Estate Management (UCEM)]] 17:09, 6 December 2012 (UTC)

−	~~= Find out more =~~	+	= Related articles on Designing Buildings Wiki =
−		+
−	=== Related articles on Designing Buildings Wiki ===	+

	* Rating valuation.		* Rating valuation.
Line 366:		Line 368:
	* Case notes for rating valuation (Garton V Hunter).		* Case notes for rating valuation (Garton V Hunter).

−	[[Category:Property_law]] [[Category:Taxation]] [[Category:Cost_/_business_planning]] [[Category:Property_development]]	+	[[Category:DCN_Case_Law]] [[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:DCN_Standard]] [[Category:Property_law]] [[Category:Taxation]] [[Category:Cost_/_business_planning]] [[Category:Property_development]]

Designing Buildings at 15:10, 25 May 2017

2017-05-25T15:10:20Z

Show changes

Designing Buildings at 07:08, 30 July 2014

2014-07-30T07:08:35Z

← Older revision		Revision as of 07:08, 30 July 2014
Line 22:		Line 22:
	When valuing to RV, it is possible to use a sinking fund to replace the building in place of repairs to the structure. The method in such cases becomes:		When valuing to RV, it is possible to use a sinking fund to replace the building in place of repairs to the structure. The method in such cases becomes:

−	{\| border="1" cellspacing="1" cellpadding="1"	+	{\| border="1" cellspacing="1" cellpadding="1"
	\|-		\|-
	\|		\|
Line 63:		Line 63:
	The last full year’s accounts available in the year prior to 1 April 2003 have been made known to you and from these you have extracted the following information:		The last full year’s accounts available in the year prior to 1 April 2003 have been made known to you and from these you have extracted the following information:

−	{\| border="1" cellspacing="1" cellpadding="1"	+	{\| border="1" cellspacing="1" cellpadding="1"
	\|-		\|-
	\|		\|
Line 165:		Line 165:
	*any information from previous years’ accounts which indicate that a particular item in the accounts being used is not an average annual expenditure.		*any information from previous years’ accounts which indicate that a particular item in the accounts being used is not an average annual expenditure.

−	{\| border="1" cellspacing="1" cellpadding="1"	+	{\| border="1" cellspacing="1" cellpadding="1"
	\|-		\|-
	\| '''Valuation'''		\| '''Valuation'''
Line 358:		Line 358:
	The method used here, from net trading profit onwards, is the method approved by the Lands Tribunal in a number of cases. Interest of 5 and 7 percent on tenant’s capital is often used, reflecting current interest rates. 50 percent of the balance for tenant’s remuneration and risk is commonly used, although in this particular case it may be too large a reward to the tenant for running the business. Taking the total ‘tenant’s share’ we have:		The method used here, from net trading profit onwards, is the method approved by the Lands Tribunal in a number of cases. Interest of 5 and 7 percent on tenant’s capital is often used, reflecting current interest rates. 50 percent of the balance for tenant’s remuneration and risk is commonly used, although in this particular case it may be too large a reward to the tenant for running the business. Taking the total ‘tenant’s share’ we have:

−	{\| border="1" cellspacing="1" cellpadding="1"	+	{\| border="1" cellspacing="1" cellpadding="1"
	\|-		\|-
	\|		\|
Line 396:		Line 396:
	*Case notes for rating valuation (Garton V Hunter).		*Case notes for rating valuation (Garton V Hunter).

−	~~[[Category:Other_legislation]]~~
	[[Category:Property_law]]		[[Category:Property_law]]
	[[Category:Taxation]]		[[Category:Taxation]]
	[[Category:Cost_/_business_planning]]		[[Category:Cost_/_business_planning]]
	[[Category:Property_development]]		[[Category:Property_development]]

Designing Buildings at 06:45, 21 July 2014

2014-07-21T06:45:44Z

← Older revision		Revision as of 06:45, 21 July 2014
Line 22:		Line 22:
	When valuing to RV, it is possible to use a sinking fund to replace the building in place of repairs to the structure. The method in such cases becomes:		When valuing to RV, it is possible to use a sinking fund to replace the building in place of repairs to the structure. The method in such cases becomes:

−	{\| ~~style="width: 600px;"~~ border="1" cellspacing="1" cellpadding="1"	+	{\| border="1" cellspacing="1" cellpadding="1"
	\|-		\|-
	\|		\|
Line 63:		Line 63:
	The last full year’s accounts available in the year prior to 1 April 2003 have been made known to you and from these you have extracted the following information:		The last full year’s accounts available in the year prior to 1 April 2003 have been made known to you and from these you have extracted the following information:

−	{\| ~~style="width: 500px;"~~ border="1" cellspacing="1" cellpadding="1"	+	{\| border="1" cellspacing="1" cellpadding="1"
	\|-		\|-
	\|		\|
Line 165:		Line 165:
	*any information from previous years’ accounts which indicate that a particular item in the accounts being used is not an average annual expenditure.		*any information from previous years’ accounts which indicate that a particular item in the accounts being used is not an average annual expenditure.

−	{\| ~~style="width: 600px;"~~ border="1" cellspacing="1" cellpadding="1"	+	{\| border="1" cellspacing="1" cellpadding="1"
	\|-		\|-
	\| '''Valuation'''		\| '''Valuation'''
Line 358:		Line 358:
	The method used here, from net trading profit onwards, is the method approved by the Lands Tribunal in a number of cases. Interest of 5 and 7 percent on tenant’s capital is often used, reflecting current interest rates. 50 percent of the balance for tenant’s remuneration and risk is commonly used, although in this particular case it may be too large a reward to the tenant for running the business. Taking the total ‘tenant’s share’ we have:		The method used here, from net trading profit onwards, is the method approved by the Lands Tribunal in a number of cases. Interest of 5 and 7 percent on tenant’s capital is often used, reflecting current interest rates. 50 percent of the balance for tenant’s remuneration and risk is commonly used, although in this particular case it may be too large a reward to the tenant for running the business. Taking the total ‘tenant’s share’ we have:

−	{\| ~~style="width: 500px;"~~ border="1" cellspacing="1" cellpadding="1"	+	{\| border="1" cellspacing="1" cellpadding="1"
	\|-		\|-
	\|		\|
Line 400:		Line 400:
	[[Category:Taxation]]		[[Category:Taxation]]
	[[Category:Cost_/_business_planning]]		[[Category:Cost_/_business_planning]]
		+	[[Category:Property_development]]

Designing Buildings at 12:06, 12 December 2012

2012-12-12T12:06:01Z

← Older revision		Revision as of 12:06, 12 December 2012
Line 16:		Line 16:
	= Principles =		= Principles =

−	The principle behind this method is the ability of the property to provide the tenant with an income from ~~his~~ occupation that will compensate ~~him~~ sufficiently for operating the concern, and, in addition, provide ~~him~~ a surplus which he would be prepared to pay for the right to occupy the hereditament - ie rent. Having found the rent, this will be the rateable value - remember, the statutory definition of rateable value is an open market rent.	+	The principle behind this method is the ability of the property to provide the tenant with an income from their occupation that will compensate them sufficiently for operating the concern, and, in addition, provide them a surplus which they would be prepared to pay for the right to occupy the hereditament - ie rent. Having found the rent, this will be the rateable value - remember, the statutory definition of rateable value is an open market rent.

	The method consists of taking the gross income from the concern and deducting purchases to produce gross profits. Net profit is then derived by deducting working expenses and repairs and renewals.		The method consists of taking the gross income from the concern and deducting purchases to produce gross profits. Net profit is then derived by deducting working expenses and repairs and renewals.
Line 51:		Line 51:
	\|}		\|}

−	From the net profit, or ‘divisible balance’, it was mandatory (following the House of Lords decision in Railway Assessment Authority v Southern Railway Co (1936)) to deduct the tenant’s share to cover ~~his~~ remuneration, risk and interest on ~~his~~ capital. This was frequently taken as a percentage of the capital employed by the tenant (say	+	From the net profit, or ‘divisible balance’, it was mandatory (following the House of Lords decision in Railway Assessment Authority v Southern Railway Co (1936)) to deduct the tenant’s share to cover their remuneration, risk and interest on their capital. This was frequently taken as a percentage of the capital employed by the tenant (say 15 percent). In recent years, however, particularly where divisible balances are small, it has been customary to deduct from the divisible balance interest on tenant’s capital (at a rate percent which they might obtain by placing the sum in a secure investment such as a building society). The remainder is then divided between the landlord and the tenant on an unspecified basis - frequently 50 percent each. The landlord’s share is the rent and, by definition, will be the rateable value.
−		+
−	15 percent). In recent years, however, particularly where divisible balances are small, it has been customary to deduct from the divisible balance interest on tenant’s capital (at a rate percent which he might obtain by placing the sum in a secure investment such as a building society). The remainder is then divided between the landlord and the tenant on an unspecified basis - frequently 50 percent each. The landlord’s share is the rent and, by definition, will be the rateable value.	+

	----		----
Line 159:		Line 157:
	Notes:		Notes:

−	Remember that although the accounts of the actual occupier are being used as a basis, the object is to draw up a set of accounts for the hypothetical tenant. Expenditure on rent must not be allowed as a working expense - this depends on the answer and is included in the divisible balance. Ground rent or mortgage interest would similarly be excluded, since the hypothetical tenant would not be paying them. Anything in the nature of tenant’s remuneration or interest on ~~his~~ capital is excluded because this too belongs to the divisible balance.	+	Remember that although the accounts of the actual occupier are being used as a basis, the object is to draw up a set of accounts for the hypothetical tenant. Expenditure on rent must not be allowed as a working expense - this depends on the answer and is included in the divisible balance. Ground rent or mortgage interest would similarly be excluded, since the hypothetical tenant would not be paying them. Anything in the nature of tenant’s remuneration or interest on their capital is excluded because this too belongs to the divisible balance.

	Remember too that the hypothetical tenant is a prudent businessman of average competence. To the extent that the actual occupier may be above or below this standard, some adjustment in the expenses may be justified.		Remember too that the hypothetical tenant is a prudent businessman of average competence. To the extent that the actual occupier may be above or below this standard, some adjustment in the expenses may be justified.

Designing Buildings at 10:39, 7 December 2012

2012-12-07T10:39:25Z

← Older revision		Revision as of 10:39, 7 December 2012
Line 397:		Line 397:
	*Choice of method for rating valuation.		*Choice of method for rating valuation.
	*Case notes for rating valuation (Garton V Hunter).		*Case notes for rating valuation (Garton V Hunter).
		+
		+	[[Category:Other_legislation]]
		+	[[Category:Property_law]]
		+	[[Category:Taxation]]
		+	[[Category:Cost_/_business_planning]]

Designing Buildings at 10:18, 7 December 2012

2012-12-07T10:18:34Z

← Older revision		Revision as of 10:18, 7 December 2012
Line 243:		Line 243:
	13,150		13,150

−	10,990	+	<u>10,990</u>

	\|		\|
Line 303:		Line 303:

	\|		\|
−	.
−
	.		.

Line 388:		Line 386:
	----		----

−	This article was created by --[[User~~:The College of Estate Management~~\|The College of Estate Management]] 17:09, 6 December 2012 (UTC)	+	This article was created by --[[User%3AThe%20College%20of%20Estate%20Management\|The College of Estate Management]] 17:09, 6 December 2012 (UTC)

	= Find out more =		= Find out more =

The College of Estate Management at 17:09, 6 December 2012

2012-12-06T17:09:05Z

← Older revision		Revision as of 17:09, 6 December 2012
Line 385:		Line 385:

	Rates are treated as any other working expense. Actual rates are used if the rates paid in previous years form a reliable guide to the rates payable in future years. This approach was approved in Thomason v Rowland (VO) (1995).		Rates are treated as any other working expense. Actual rates are used if the rates paid in previous years form a reliable guide to the rates payable in future years. This approach was approved in Thomason v Rowland (VO) (1995).
		+
		+	----
		+
		+	This article was created by --[[User:The College of Estate Management\|The College of Estate Management]] 17:09, 6 December 2012 (UTC)

	= Find out more =		= Find out more =

Designing Buildings at 17:02, 6 December 2012

2012-12-06T17:02:50Z

← Older revision		Revision as of 17:02, 6 December 2012
Line 385:		Line 385:

	Rates are treated as any other working expense. Actual rates are used if the rates paid in previous years form a reliable guide to the rates payable in future years. This approach was approved in Thomason v Rowland (VO) (1995).		Rates are treated as any other working expense. Actual rates are used if the rates paid in previous years form a reliable guide to the rates payable in future years. This approach was approved in Thomason v Rowland (VO) (1995).
		+
		+	= Find out more =
		+
		+	=== '''Related articles on Designing Buildings Wiki''' ===
		+	*Rating valuation.
		+	*Rental method of rating valuation.
		+	*Contractor’s basis for rating valuation.
		+	*Statutory formulae for rating valuation.
		+	*Choice of method for rating valuation.
		+	*Case notes for rating valuation (Garton V Hunter).

Designing Buildings: moved The profits method of rating valuation to Profits method of rating valuation

2012-12-06T16:33:26Z

moved The profits method of rating valuation to Profits method of rating valuation

← Older revision

Revision as of 16:33, 6 December 2012