Investment property in company accounts: cost or fair value?

In short: Micro-entity accounts must show a rental property at cost, because the law switches fair value accounting off for micro-entities (SI 2008/409 reg 3). Small-company accounts under FRS 102 carry investment property at fair value, with each year's change in the profit and loss account. Either way, Corporation Tax on the rise waits until the property is sold (GOV.UK). Taxley prepares and files the Company Tax Return (CT600) with micro-entity accounts for £39.95 or with small-company accounts, which can show a fair value gain, for £129, and files the accounts at Companies House once the return is paid and the accounts are finished.

Take the 30-second check to see whether Taxley fits your company, or work out a sale with the chargeable gains calculator.

Key facts (checked on 10 October 2026)

Can a property company show its rental property at fair value?

Only in small-company accounts. Regulation 3(1A) of SI 2008/409 says the alternative accounting rules and the fair value rules don't apply to a micro-entity whose accounts use the micro-entity exemptions. A small company, or a micro-entity choosing small-company accounts, may include investment property at fair value under Schedule 1 paragraph 39.

The rules sit in the Small Companies and Groups (Accounts and Directors' Report) Regulations 2008. Paragraph 39 lets stocks, investment property and living animals and plants be included at fair value, provided every item of that kind is at fair value where its fair value can reliably be determined, and fair value means fair value under generally accepted accounting principles or practice (SI 2008/409 Sch 1 para 39). FRS 102, the standard small-company accounts follow, turns that option into a rule: paragraph 16.7 says investment property shall be measured at fair value at each reporting date, and paragraph 1A.1 applies its measurement rules to small entities (FRS 102). A company is a micro-entity when it meets two of three conditions: turnover of no more than £1 million, a balance sheet total of no more than £500,000 and no more than 10 employees (Companies Act 2006 s.384A). A company within those limits can still prepare small-company accounts, because regulation 3(1A) only bites on a year whose accounts take the micro-entity exemptions. Our guide to micro-entity versus small-company accounts covers the wider trade-offs.

What do micro-entity accounts show for a rental property?

Its cost. Under the historical cost rules a fixed asset goes in at its purchase price, reduced by depreciation when it has a limited useful economic life. The prudence rule keeps an unrealised rise out too: only profits realised at the balance sheet date may go in the profit and loss account (SI 2008/409 Sch 1).

Paragraphs 13, 17 and 18 of Schedule 1 set those rules, and a micro-entity's balance sheet uses the short formats in Section C of Part 1, where the property sits inside one line, "Fixed assets" (SI 2008/409 Sch 1). The notes shrink to almost nothing: regulation 5A requires only the paragraph 57 information on financial commitments, guarantees and contingencies (SI 2008/409 reg 5A). In practice the balance sheet keeps the purchase price, less depreciation, however far the market has risen, so a lender reading the accounts sees nothing of the increase. Depreciation makes no difference to Corporation Tax, because HMRC says neither the capital cost of a let property nor its depreciation can be deducted in working out the taxable profit (HMRC PIM2005). Our guide to what goes in micro-entity accounts lists every line and note.

How does fair value work in small-company accounts?

The property goes on the balance sheet at its fair value at the year end, and the year's change in value goes through the profit and loss account rather than a reserve. Schedule 1 paragraph 40(2) of SI 2008/409 requires the change in value of investment property held at fair value to be included in profit.

Paragraph 40(2) applies notwithstanding the prudence rule in paragraph 13, which is how an unrealised gain reaches the profit and loss account. The notes carry more as a result: paragraph 51 asks for the significant assumptions behind the valuation and, for each category of asset, the fair value and the changes in value taken to profit (SI 2008/409 Sch 1 para 51). A gain in the profit and loss account is not the same as profit available for dividends. The Companies Act 2006 lets a company make a distribution only out of accumulated realised profits less accumulated realised losses (Companies Act 2006 s.830), and HMRC's manual says realised profits don't include "unrealised profit arising as a result of a revaluation of assets" (HMRC CTM15205). FRS 102 lets the company move the gain to a separate non-distributable reserve to make that clear, but doesn't require it (paragraph A3.28 of FRS 102). Check the reserves before declaring a dividend after a valuation gain. Our guide to FRS 102 small company accounts covers the other notes.

Is a property revaluation gain taxable for a company?

No. A rise in value shown in the accounts isn't taxed in the year it appears. A company pays Corporation Tax on the profit from selling or disposing of an asset, its chargeable gain (GOV.UK), so the growth in a rental property's value is taxed only when the property is sold, measured from its original cost.

The rental profit is worked out like the profit of a trade, and HMRC's property manual says capital items stay out of it: neither the cost of the let property nor its depreciation can be deducted, and nor can a loss on selling it (HMRC PIM2005). HMRC's business manual adds that the same capital and revenue divide decides whether a receipt is taxable (HMRC BIM35005). The tax computation therefore takes a fair value gain back out of the accounts profit before the CT600 is completed, and adds back a fair value loss in the same way. HMRC's guide to box 190, income from a property business, says the computation must show the adjustments made to the figures in the company's accounts (HMRC: Completing your Company Tax Return). Our guide to Corporation Tax for a property rental company covers the rental profit itself.

Worked example: how do cost and fair value accounts compare for a £220,000 rental house?

Both sets of accounts lead to the same Corporation Tax: £3,420 in the year the house's value rises by £50,000, and £15,860 in the year it is sold. Only the accounts differ. Micro-entity accounts show the house at its £230,000 cost; small-company accounts show £280,000 and a £68,000 profit before tax.

Elmfield Lettings Ltd, a fictional company, bought a house to let in June 2022 for £220,000 and paid £10,000 of buying costs, such as legal fees and Stamp Duty Land Tax, so its cost is £230,000; the incidental costs of acquisition count as allowable cost (TCGA 1992 s.38). It lets to unconnected tenants, so it isn't a close investment-holding company taxed at the main rate on everything (HMRC CTM03951). It has no associated companies, and its 12-month accounting periods end on 31 March. The house was worth £230,000 at 31 March 2025 and £280,000 at 31 March 2026. Rental profit for the year to 31 March 2026 is £18,000 after all costs. To keep the comparison clean, the example leaves out depreciation, which HMRC doesn't allow as a deduction anyway (HMRC PIM2005). For the financial year starting 1 April 2025, the small profits rate is 19% on profits up to £50,000 (GOV.UK: rates and allowances).

The small-company accounts report £18,000 + £50,000 = £68,000 of profit before tax, but the computation removes the £50,000, so taxable profit is £18,000 under both and Corporation Tax is £18,000 × 19% = £3,420. Net assets in the fair value accounts are £50,000 higher than in the micro-entity accounts before deferred tax, which FRS 102 requires on the gain, measured at the tax rates and allowances that would apply on a sale (paragraphs 29.6 and 29.16 of FRS 102). The higher figure doesn't make the £50,000 available for dividends, because it stays unrealised until the house is sold (HMRC CTM15205). Before then, the gain changes how the accounts read, not what the company owes HMRC.

How is the gain taxed when the company sells?

The chargeable gain is worked out from the original cost, not the value in the accounts, and taxed with the year's other profits. Elmfield's gain on selling the house for £300,000 is £65,000 under both kinds of accounts, and with £9,000 of rental profit its Corporation Tax for the year to 31 March 2027 is £15,860.

Elmfield exchanges contracts on 15 September 2026, which puts the sale in the year to 31 March 2027, because a disposal under a contract happens when the contract is made, not at completion (TCGA 1992 s.28). Agent's and legal fees on the sale are £5,000. Deductions are limited to the cost of acquisition with its incidental costs, spending that improved the asset, and the incidental costs of the sale (TCGA 1992 s.38), so the gain is £300,000 − £5,000 − £230,000 = £65,000. Indexation is nil. The law allows none for changes in the retail prices index after December 2017, and none on spending incurred on or after 1 January 2018 (TCGA 1992 s.53 and s.54), and every cost here dates from 2022. Our company chargeable gains guide works through a pre-2018 purchase.

Taxable total profits are £9,000 of rental profit plus the £65,000 gain, £74,000, which falls between the £50,000 and £250,000 limits for the financial year starting 1 April 2026, so marginal relief applies (GOV.UK: rates and allowances). Tax at the 25% main rate is £74,000 × 25% = £18,500. Marginal relief is (£250,000 − £74,000) × 3/200 = £2,640, using HMRC's formula with no exempt distributions (HMRC CTM03925). Corporation Tax is £18,500 − £2,640 = £15,860. Without the sale, £9,000 at 19% would cost £1,710, so the gain adds £14,150 of tax, about 21.8% of it. The accounts tell a different story: micro-entity accounts show a £65,000 profit on disposal, while the fair value accounts, which already counted £50,000 of the rise, show £300,000 − £5,000 − £280,000 = £15,000. The CT600 uses neither accounts figure; it uses the £65,000 computed gain.

Should your property company use cost or fair value?

Use micro-entity accounts at cost if the company qualifies and nobody needs to see the property's current value. Choose small-company accounts at fair value if a lender, investor or buyer reads the accounts, or the company is above the micro-entity limits. Corporation Tax is the same either way, so the choice turns on presentation, notes and effort.

The choice is made year by year. Regulation 3(1A) bars fair value only for a financial year in which the company qualifies as a micro-entity and its accounts take the micro-entity exemptions (SI 2008/409 reg 3), so a micro-entity may prepare small-company accounts for any year. Moving back and forth is harder: accounting policies must be applied consistently from one financial year to the next, and a departure needs special reasons, with its particulars, reasons and effect explained in a note (SI 2008/409 Sch 1 paras 10 and 12). Treat fair value as a lasting choice, and take an accountant's advice before changing basis. A change in whether the company meets the micro-entity size conditions only affects its status if it happens in two consecutive financial years (Companies Act 2006 s.384A); the company size checker runs the test.

Can Taxley prepare property company accounts with investment property at fair value?

Yes, in its small-company accounts. Taxley's FRS 102 Section 1A accounts have a fair value gain or loss line for investment property, a fixed assets line at cost or valuation, a revaluation reserve and deferred tax boxes. Its micro-entity accounts keep property at cost and stay a draft while any fair value figure is entered.

Taxley (taxley.co.uk), UK online software that prepares and files the Company Tax Return (CT600) with HMRC and the annual accounts with Companies House, prepares micro-entity (FRS 105) accounts with the return for £39.95 and small-company (FRS 102 Section 1A) accounts for £129. You choose the accounts type when you start the return. In small-company accounts you enter the year-end value as the fixed assets figure and the year's change on the fair value line. The accounting policies then say investment property is measured at fair value, the fixed assets note shows the movement on its own line, and the tax computation leaves the gain out as not taxable. If micro-entity accounts carry a fair value gain, a revaluation reserve or deferred tax, they stay a draft until the figures are removed or support switches the return to small-company accounts.

Taxley doesn't value the property and doesn't calculate deferred tax, which FRS 102 accounts need on a fair value gain: you work out the charge and the provision and enter them. There's no separate box for the valuation assumptions paragraph 51 asks for, so write them into the accounting policies note, which you can edit. When the company sells, the chargeable gains calculator covers most sales of UK property bought in one go, including indexation, shows the accounts profit on disposal beside the chargeable gain and leaves the accounts profit out of taxable profits. It doesn't cover sales to someone connected with the company or reliefs such as rollover relief. Taxley isn't tax advice, so have a qualified adviser check any deferred tax before you file. Take the 30-second check to see whether Taxley fits your company, or see the price for your company.

Frequently asked questions

Do micro-entity accounts have to depreciate a rental property?

The historical cost rules require depreciation of a fixed asset with a limited useful economic life, written off systematically over that life (SI 2008/409 Sch 1 para 18). The charge never reduces Corporation Tax, because HMRC says depreciation of a let property can't be deducted (HMRC PIM2005).

Can a company pay a dividend out of a fair value gain?

Usually not until the property is sold. A company can distribute only accumulated realised profits less realised losses (Companies Act 2006 s.830), and HMRC's manual says realised profits exclude unrealised profit from revaluing assets (HMRC CTM15205). Take advice before declaring one.

Does a fall in the property's value reduce Corporation Tax?

Not when it is booked. A fair value loss is a capital movement that the tax computation adds back, just as it removes a gain. Relief comes only from a sale at a loss: a capital loss can be set against chargeable gains, not rent or other profits (GOV.UK).

Who has to value the property for small-company accounts?

The regulations don't name a valuer. Fair value means fair value under generally accepted accounting principles or practice (SI 2008/409 Sch 1 para 39), and the notes must state the significant assumptions behind the valuation (para 51).

Which CT600 boxes show the gain when the property is sold?

Box 210 for gross chargeable gains, box 215 for allowable losses including losses brought forward, and box 220 for net chargeable gains, which is box 210 minus box 215. HMRC asks for a calculation of each gain and loss to be attached (HMRC: Completing your Company Tax Return).

General information, not personalised tax or accounting advice.