splitting house value into land and building

Johnny1964

I am tax resident in Japan but own a house in the UK that is rented out. The Japanese Tax Office has asked me to specifiy how much the building and land are valued at separately, however in Britain residential property prices usually combine both building and land price. Is there any rule of thumb/average as to usual split of land/building value. It is on the Kent coast. Thanks in advance.

FlorayG

Impossible because if you sold the land outwith the actual building to anyone who didn't own the house it would substantially decrease the value of the house so it can't have a separately assessed value. If, for example, a house wanted to buy a field next to it belonging to someone else, that 'someone else' would expect the house owner to pay a lot more for it than they would a third party.
Are they asking how much the land would be worth if it did not have a house on it? And would that be with planning permission or not? I think you need to ask them to clarify

user1977

What's the methodology they use in Japan? I doubt there's any general rule of thumb for such a split, will depend on the local market.

Grumpy_chap

Johnny1964 said:

I am tax resident in Japan but own a house in the UK that is rented out. The Japanese Tax Office has asked me to specifiy how much the building and land are valued at separately, however in Britain residential property prices usually combine both building and land price. Is there any rule of thumb/average as to usual split of land/building value. It is on the Kent coast. Thanks in advance.

I think you will need to employ a professional RICS Surveyor to give an answer.

Off the top of my head, I can think of two methods that would likely give different outcomes. 

OPTION ONE
 - Sell the house leasehold (house value)
 - Sell the freehold with the lease fees that may arise (land value)

OPTION TWO
 - Sell the plot for development (land value)
 - Difference between development value and current market rate for land with house is the house value.


It is possible that any outcome will give a value for the land (separately) plus the house (separately) that does not equal the value of the land and the house (together).  Together may be higher because of "marriage value".  I can also see how together may be lower than separately.

poseidon1

Johnny1964 said:

I am tax resident in Japan but own a house in the UK that is rented out. The Japanese Tax Office has asked me to specifiy how much the building and land are valued at separately, however in Britain residential property prices usually combine both building and land price. Is there any rule of thumb/average as to usual split of land/building value. It is on the Kent coast. Thanks in advance.

Your question piqued my curiosity as to how the Japanese tax system goes about applying their requirement to tax their permanent residents on a worldwide basis, and what problems this creates with regard to ownership of overseas property. I assume for this purpose you are deemed to be permanent resident rather than non permanent resident ( where worldwide tax does not apply)


The reddit post below was informative, and indicated that the Japanese domestic system of valuing their own land and houses separately ( largely because houses depreciate in Japan ), has bled into how they assess foreign homes for the purposes of world wide taxation of foreign assets. 

https://www.reddit.com/r/JapanFinance/comments/1ab7cf8/sellingowning_real_estate_outside_japan/


A RICS surveyor should be able to provide a figure for the rebuilding of your house for insurance purposes, and an underlying value of the land if the 'destroyed' house were not rebuilt. However whether this would quite meet the specificity required for purposes of the Japanese 'statement of assets'  is unclear. 

Seems to me you would be best advised to find an ex pat tax forum in Japan of  other foreigners like yourself who are similarly wrestling with this fundamental incompatibility between how the Japanese culturally ( and fiscally ) view land and buildings for tax reporting purposes, compared to pretty much the rest of the western world.

In the meantime the link below from PWC gives a reasonable round up of the Japanese personal tax system. The Uk system for taxation of non doms was/is very complex, Japan's seems worse.

https://taxsummaries.pwc.com/japan/individual/taxes-on-personal-income

SarahB16

As others have said there are so many variables however I would split it 17% (land value) and 83% (house value).

I will show my reasoning so anybody can query it and instead provide you with a better alternative.  Of course I don't know the spec of your house (i.e. very high end, etc) but I have assumed somewhere in the middle.  

I have assumed that to build a house 20% of the cost is made up of the land value, so 20 (land cost) and 100 (total costs including the land cost).  However, I have also assumed that a developer would sell the house for a 20% profit so the total value (land and house is now 120).  

Therefore to give a very rough approximation land value is 20/120, i.e. c.17% and therefore the remaining, i.e. 83% is the house value. 

As I have said this is very much an approximation.