Dual rate taxed valuation : a more rational approach

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.