MRP On Investment Properties

We are looking to purchase investment properties up to the value of £10m. We have an MRP policy that allows us to use the Option 4 Depreciation method.

As long as the investment property holds it value at an amount greater than its purchase price then no MRP will be charged. Obviously at the end of the loan period we would consider whether to sell the property to repay the loan or take out another loan if we expect the investment property to continue to retain its value.

If we were to purchase an investment property say for £1m with a ten year life and at year five the property is only worth £0.9m would you charge £0.1m straight away to MRP, charge MRP at £0.02m for the remaining five years or if you expect the investment property to go up to a value above the original £1m by the end of its 10 year life would you make no MRP provision at all or just make a one off prudent MRP provision.

I am aware that one MRP is charge it cannot be reversed.

Any suggestions from other authorities with Investment Properties using Option 4 will e greatly appreciated.

  • I would steer clear of using Option 4 for investment properties; the idea behind the depreciation method is that it is just another way of allocating the MRP charge over the life of the related asset, not a way to avoid making an MRP charge at all just because no depreciation is charged for that type of asset. Otherwise you are in danger of making no provision at all for some borrowing which is hard to justify as a prudent provision per the Capital Finance Regs.