Revaluing fixed assets and the revaluation reserve

Q: What does a revaluation look like in practice?

Illustration only. A company bought an office building (ignoring the site, which is not depreciated) for £500,000 with a 50 year life. After 10 years its carrying amount is £400,000. It is revalued to £600,000 with 40 years of life remaining. Deferred tax is ignored to keep the figures simple. EventAsset £Revaluation reserve £Profit or loss £ Revaluation gain in year 10+200,000+200,000 (via other comprehensive income)Nil Annual depreciation, years 11 to 15 (£600,000 over 40 years)−15,000 a yearNil15,000 charge a year Annual reserve transfer of excess depreciation (£15,000 less £10,000)Nil−5,000 a year, to retained earningsNil Position at end of year 15525,000175,000 If a valuation at the end of year 15 came in at £450,000, the £75,000 fall is within the £175,000 reserve for that building, so all of it goes to other comprehensive income and the reserve drops to £100,000. If it came in at £300,000, the £225,000 fall would use the whole £175,000 reserve and the remaining £50,000 would be charged to profit or loss. A later recovery would be credited to profit or loss first, up to that £50,000, and only then to the reserve.

Under FRS 102 a company can carry a whole class of property, plant and equipment at fair value instead of cost, provided it revalues often enough that the balance sheet figure is not materially different from fair value at each year end. Gains go to other comprehensive income and build up in a separate revaluation reserve required by company law; falls in value first use up that asset’s reserve and only then hit profit or loss.

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Which fixed assets can be revalued?

Paragraph 17.15 of FRS 102 lets a business choose the cost model or the revaluation model for property, plant and equipment, but the choice is made class by class. If the revaluation model is chosen it must be applied to every item in the same class, meaning assets with a similar nature, function or use. Recognition and component rules are in FRS 102 Section 17: property, plant and equipment.

The position for other assets is narrower:

Intangible assets can be revalued only where fair value can be determined by reference to an active market (paragraph 18.18B), which the glossary defines as a market with transactions of sufficient frequency and volume to give pricing information on an ongoing basis. See FRS 102 Section 18: intangible assets.
Goodwill cannot be revalued. Schedule 1 paragraph 32(1) of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 allows intangible fixed assets to be carried at current cost, but only those other than goodwill.
Investment property sits outside this model. Paragraph 16.7 measures it at fair value with changes in profit or loss; see investment property accounting.
Micro entities using FRS 105 cannot revalue. Paragraph 12.14 requires cost less depreciation and impairment, so a company that wants to show property at valuation has to move up to FRS 102.

How often does a valuation have to be done?

FRS 102 sets a test, not a timetable. Paragraph 17.15B requires revaluations to be made with sufficient regularity to ensure that the carrying amount does not differ materially from fair value at the end of the reporting period. Paragraph 18.18D uses the same wording for intangibles. In a stable market a full valuation every few years, with checks for material movement in between, may pass; where values move quickly, only an annual valuation may do.

On who values, paragraph 17.15C says the fair value of property is usually determined from market based evidence by appraisal normally undertaken by professionally qualified valuers, and plant and equipment is usually valued at market value by appraisal. Where an asset is specialised and rarely sold except as part of a continuing business, paragraph 17.15D allows an income or depreciated replacement cost approach. Section 2A, part of the Periodic Review 2024 amendments for accounting periods beginning on or after 1 January 2026, makes fair value a market based measurement, not an entity specific one (paragraphs 2A.2 and 2A.3).

FRS 102 does not require the valuer to be independent, but paragraph 17.32A(b) requires disclosure of whether an independent valuer was involved.

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How does a revaluation move through the reserve?

The movements are tracked asset by asset:

An increase goes to other comprehensive income and is accumulated in equity, except to the extent that it reverses a previous revaluation decrease on the same asset that was charged to profit or loss. That reversing part goes to profit or loss (paragraph 17.15E).
A decrease goes to other comprehensive income up to the revaluation gains already accumulated in equity for that asset. Any excess goes to profit or loss (paragraph 17.15F).

Company law decides where the credit sits. Schedule 1 paragraph 35(1) requires the profit or loss on a revaluation to be credited or debited to a separate reserve, the revaluation reserve, and paragraph 35(2) requires it to be shown under its own sub heading in capital and reserves. Paragraph 35(5) says the reserve must not be reduced except as that paragraph allows. The permitted routes in paragraph 35(3) are:

a transfer to the profit and loss account if the amount was previously charged to that account or represents realised profit;
use on capitalisation, meaning paying up unissued shares allotted to members as fully or partly paid bonus shares (paragraph 35(4));
transfers to or from the reserve for the tax relating to amounts in it.

The reserve must also be reduced to the extent that amounts in it are no longer necessary for the valuation method used. Gains and losses passing through other comprehensive income are explained further in other comprehensive income under FRS 102, and the transfers appear in the statement of changes in equity.

What happens to depreciation after a revaluation?

Under paragraph 17.15B the asset is carried at its fair value at the revaluation date less later depreciation and impairment, so the depreciation charge is based on the revalued amount from then on. Schedule 1 paragraph 33(1) reflects the same idea in company law: the depreciation rules apply with the most recent valuation substituted for purchase price.

The charge on an upward revaluation is therefore higher than it would have been on historical cost. Section 841(5) of the Companies Act 2006 treats that excess, the difference between depreciation on the revalued amount and depreciation that would have been charged without the revaluation gain, as a realised profit made over the period. Because it is realised, paragraph 35(3) permits an equal amount to be transferred each year from the revaluation reserve to retained earnings. The transfer is a movement within equity; it does not pass through profit or loss or other comprehensive income.

What does a revaluation look like in practice?

Illustration only. A company bought an office building (ignoring the site, which is not depreciated) for £500,000 with a 50 year life. After 10 years its carrying amount is £400,000. It is revalued to £600,000 with 40 years of life remaining. Deferred tax is ignored to keep the figures simple.

Event	Asset £	Revaluation reserve £	Profit or loss £
Revaluation gain in year 10	+200,000	+200,000 (via other comprehensive income)	Nil
Annual depreciation, years 11 to 15 (£600,000 over 40 years)	−15,000 a year	Nil	15,000 charge a year
Annual reserve transfer of excess depreciation (£15,000 less £10,000)	Nil	−5,000 a year, to retained earnings	Nil
Position at end of year 15	525,000	175,000

If a valuation at the end of year 15 came in at £450,000, the £75,000 fall is within the £175,000 reserve for that building, so all of it goes to other comprehensive income and the reserve drops to £100,000. If it came in at £300,000, the £225,000 fall would use the whole £175,000 reserve and the remaining £50,000 would be charged to profit or loss. A later recovery would be credited to profit or loss first, up to that £50,000, and only then to the reserve.

Can the revaluation reserve be used to pay dividends?

No, not directly. A revaluation gain is an unrealised profit and dividends must come from realised profits; see how to pay dividends legally. The reserve becomes available only gradually, through the excess depreciation transfer described above, or when the asset is sold and the remaining surplus is realised and transferred.

Section 841 also deals with falls in value. A provision for a fall in value is normally a realised loss, but a revaluation provision, meaning a fall that appears on a revaluation of all the fixed assets or all fixed assets other than goodwill, is excluded (sections 841(2) and (3)).

How does deferred tax interact with the reserve?

FRS 102 paragraph 29.6 requires deferred tax on timing differences, defined by reference to differences between taxable profits and total comprehensive income. A revaluation gain recognised in other comprehensive income is therefore normally a timing difference, and the deferred tax on it follows the gain into other comprehensive income. For a non depreciable asset under the revaluation model, such as the site under a building, paragraph 29.15 requires deferred tax to be measured using the tax rates and allowances that apply to a sale of the asset. Company law then requires the tax treatment of amounts credited or debited to the revaluation reserve to be disclosed (Schedule 1 paragraph 35(6)), and paragraph 35(3)(b) permits tax transfers to and from the reserve.

What do the notes have to show?

Paragraph 17.32A requires the effective date of the revaluation, whether an independent valuer was involved, the methods and significant assumptions used, and for each revalued class the carrying amount there would have been under the cost model. Small companies using Section 1A have company law requirements set out in paragraphs 1AC.15 to 1AC.17: the years in which assets were valued and the values, the names or qualifications of anyone who valued assets during the year and the bases they used, the historical cost comparatives, and the movements on the revaluation reserve in tabular form with an explanation of their tax treatment.

What mistakes come up most often?

Revaluing a single favoured asset rather than the whole class.
Never updating a valuation, so the figure drifts materially from fair value.
Netting a fall on one building against the surplus on another; the reserve test in paragraph 17.15F is applied asset by asset.
Continuing to depreciate on the old cost after a revaluation, or forgetting the annual excess depreciation transfer.
Treating the revaluation reserve as distributable, or reducing it in ways paragraph 35 does not allow.

The way depreciation itself is calculated is covered in depreciation methods.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.