Are you valuing your real estate according to IFRS and wondering about the hidden tax burdens lurking in your balance sheet? The discrepancy between market value and tax book value can lead to significant deferred taxes. This article will show you how to not only understand the tax implications of IFRS property valuation but also manage them strategically.
Chat with ImmoGPT for free now.
With access to Google, BORIS, and Deep Research.
The topic briefly and concisely
The fair value assessment according to IFRS (IAS 40) reveals hidden reserves in real estate, which leads to the creation of deferred tax liabilities.
Deferred taxes directly affect balance sheet indicators such as the equity ratio and the level of indebtedness, which in turn influences ratings and financing conditions.
Proactive management through strategic transaction planning and regular, data-driven assessments is crucial to minimize tax risks.
The transition to International Financial Reporting Standards (IFRS) has increased transparency for investors, but it has also introduced new complexities. Particularly, the valuation of properties at fair value according to IAS 40 presents significant tax pitfalls for owners and heirs. Unlike in the German HGB, where the historical cost principle applies, revaluation under IFRS leads to the recognition of hidden reserves. This results in deferred tax liabilities that can significantly impact your financial ratios and liquidity. A deep understanding of the tax implications of IFRS property valuation is therefore not a luxury, but a necessity for making well-informed strategic decisions. We guide you through the key aspects and show you how to minimise risks and seize opportunities.
Fundamental Difference: Fair Value according to IFRS vs. Acquisition Cost according to HGB
The core of the fiscal issue lies in the valuation approach. While the German Commercial Code (HGB) insists on the strict acquisition cost principle, IFRS requires or permits valuation at fair value, i.e., the current market value. Specifically, IAS 40 regulates the accounting of properties held as financial investments. Suppose a property was purchased for €5 million and is now worth €8 million. Under HGB, it would still be recorded at €5 million (minus depreciation) in the balance sheet, whereas under IFRS, it would be recorded at €8 million. This difference of €3 million is the hidden reserve that IFRS reveals. A precise understanding of the differences between HGB and IFRS is the first step towards risk control. The revaluation is thus the direct trigger for the creation of deferred taxes.
Deferred Taxes: The Inevitable Consequence of Fair Value Measurement
What happens to the disclosed hidden reserves? As the tax valuation (according to HGB rules) continues to remain at the acquisition cost, a temporary difference arises between the IFRS balance sheet and the tax balance sheet. Deferred tax liabilities must be created for this difference. Assuming a tax rate of 30% on the €3 million increase in value from our example, a deferred tax liability of €900,000 arises. This liability represents a future tax burden that becomes due upon the sale of the property. Accurate recording is crucial, as demonstrated by the handling of deferred taxes. These balance sheet tax debts are not purely hypothetical items but have real implications for your financial indicators.
Impact on Financial Ratios and Corporate Rating
The formation of deferred tax liabilities has direct consequences. They increase liabilities and reduce equity, leading to a deterioration of the equity ratio. A ratio that drops from 35% to 30% might already ring alarm bells at banks. This affects ratings and thus the conditions for future financing. A company with high deferred taxes is considered riskier by lenders. It is therefore essential to thoroughly analyze the accounting impacts of an appreciation. The following points are particularly affected:
Equity ratio: Decreases due to the increase in deferred tax liabilities.
Gearing: Increases as deferred taxes are regarded as liabilities.
Return on Equity (ROE): May be distorted due to lower equity.
Credit covenants: Breaches of agreed metrics are possible and can accelerate loan repayments.
These effects demonstrate that the tax implications of IFRS real estate valuation extend far beyond mere tax filing.
Active vs. Passive Deferred Taxes: A Strategic Differentiation
Not every deferred tax is a liability. While increases in value lead to passive deferred taxes (tax liabilities), decreases in value or tax loss carryforwards can justify active deferred taxes (tax claims). If the fair value of a property falls below its tax residual book value, a deductible temporary difference arises. Assuming the value of another property decreases by €500,000. This could lead to a deferred tax claim of €150,000 (at a 30% tax rate). Offsetting active and passive items is a key lever for optimising the balance sheet structure. A detailed analysis of the various deferred tax approaches is essential for strategic planning. The challenge lies in demonstrating the validity of these active items to the tax office and auditors.
IAS 40 in Detail: Scope and Disclosure Requirements
IAS 40 specifically applies to investment properties, meaning properties held to earn rental income or for capital appreciation. Owner-occupied properties are covered under IAS 16, which also allows a fair value measurement. IAS 40 requires extensive disclosure in the notes. Companies must be transparent about the methods and key assumptions used to determine the fair value. Was the valuation carried out by an independent appraiser with recognized qualifications? This alone can increase the credibility of the financial statements by over 20%. The transparency requirements under IFRS are strict and aim to ensure traceability for investors. Knowing the exact IFRS disclosure requirements protects against awkward questions at the next audit.
Strategies for the active management of tax effects
You are not passively subject to the tax implications of IFRS property valuation. Proactive management is both possible and necessary. A precise, data-driven property valuation forms the basis for every strategic decision. Do you know exactly the tax burden triggered at which sale price? Here, an AI-supported analysis, like the one Auctoa offers, can provide clarity and calculate scenarios within seconds. The following strategies can help you optimise:
Timing of transactions: Plan sales in periods when you may have tax losses to offset.
Structuring of portfolios: Hold properties in different companies to isolate and specifically manage tax effects.
Regular revaluation: Conduct regular assessments to avoid being surprised by sudden, significant increases in value and resulting tax burdens. An annual adjustment can smooth volatility by up to 15%.
Use of valuation models: Understand the models used for Fair Value determination and their sensitivity to interest or market changes.
A solid data foundation is key to maintaining control and setting the right course.
steuerliche-auswirkungen-ifrs-immobilienbewertung
The fair value assessment of real estate under IFRS is more than just an accounting exercise. It is a powerful tool that creates transparency, but without the necessary knowledge, it entails significant tax risks. The emergence of deferred taxes is a direct consequence that impacts balance sheet indicators, financing costs, and liquidity. The key to success lies in proactively addressing the tax implications of IFRS real estate valuation. Only those who understand the connections and have a reliable data basis can strategically manage the effects. Do not view IFRS valuation as a burden, but as an opportunity to optimise your real estate strategy.
Additional useful links
Universität Regensburg offers a dissertation on a business law topic, possibly related to accounting or valuation.
Juhn provides an overview of IFRS standard accounting in the context of commercial and corporate law.
Haufe offers an article on financial statement policy according to IFRS, particularly regarding the valuation of non-operating properties and buildings.
KPMG provides a brochure on real estate accounting under IFRS and HGB.
Compliance Digital offers an e-book on real estate valuation according to HGB and IFRS.
WTS offers an article about IAS 40, dealing with investment properties.
DRSC (Deutsches Rechnungslegungs Standards Committee) provides a document on IFRS evaluation.
BDO offers consultancy services on accounting under IFRS or HGB in the real estate sector.
PKF provides an article on changes to IFRS 9 and IFRS 7 regarding the classification and measurement of financial instruments from 1 January 2026.
FAQ
Why is IFRS property valuation important for heirs?
For heirs, it is crucial to understand properties valued according to IFRS and the associated deferred taxes. A high deferred tax burden can reduce the actual value of the inheritance and lead to unexpectedly high tax payments in the event of a planned sale. An impartial valuation helps capture the true financial situation.
How can Auctoa help in analysing the tax implications?
Auctoa provides a swift and objective property valuation at fair value through AI-powered analysis. Our platform can also simulate scenarios and demonstrate how changes in value impact deferred taxes. This offers you a reliable data foundation for strategic decisions and discussions with banks or tax advisors.
Does every IFRS valuation automatically result in a higher tax burden?
Not immediately. The IFRS valuation initially leads to the recognition of a deferred (future) tax liability in the balance sheet. The actual tax only becomes payable when the hidden reserves are realized, such as through a sale. Proactive planning can help optimize this timing.
What role does an independent appraiser play in fair value assessment?
An independent appraiser is not always mandatory under IFRS, but is highly recommended. An external valuation significantly enhances the reliability and credibility of the Fair Value. This is viewed positively by investors, banks, and auditors, and should be disclosed in the notes.
Can I switch back from the fair value model to the acquisition cost model?
A switch from the fair value model back to the historical cost model is permitted under IFRS only in very rare exceptional cases and is virtually ruled out in practice. Therefore, the decision in favour of the fair value model is generally final.
What happens if the property loses value?
A decrease in value below the previous book value is also recognised in the profit and loss account. This may lead to the reversal of existing deferred tax liabilities or even to the creation of deferred tax assets, which represent a potential future tax saving.
