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Reconsiders the double sinking fund problem by looking at each of the common methods used. Investigates the underlying assumptions and the residual errors or inconsistencies. Notes that the use of traditional dual rate valuations results in a mathematical error within the valuation and an under‐valuation of the interest. Concludes that the Double Sinking Fund Method must be recommended in preference to Pannell′s Method.

Concludes an earlier paper by analysing the problems of negative contributions to the sinking fund. Notes that the use of traditional dual rate valuations results in a mathematical error within the valuation and an under‐valuation of the interest. Concludes that should the Chancellor of the Exchequer decide to allow exemptions from tax of sinking fund contributions and income within sinking funds the logic of dual rate valuation would be removed.

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.

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.

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.

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.

This paper is the original work of the authors.

About 20 years ago it was recognised that an anomaly could arise in the application of the dual rate method of valuation where the income varied during the term, and in subsequent years various methods of modifying the dual rate calculation were proposed, including the Double Sinking Fund Method (A. W. Davidson), and the Annual Equivalent and Sinking Fund Methods (M. J. Greaves). A further alternative, Pannell's method, has also been suggested, but it is not considered here. These three methods give somewhat differing results as demonstrated by Baum and Mackmin,1 since the underlying assumptions are different. These latter authors came to the conclusion that the Double Sinking Fund Method (DSF) in particular could result in a degree of over‐valuation and the purpose of this paper is to examine the reasons for this.

In the previous paper the reasons for the well known anomaly in the valuation of varying incomes of limited duration were examined and it was shown that the Double Sinking Fund Method as originally proposed did not solve the problem where different remunerative rates of interest were used. It was pointed out that in fact the problem was not a dual rate problem but a triple rate one since during some part of the life of the income there were three different rates of interest operating. If, however, the problem is constrained by requiring that during any part of the period only one remunerative rate is permitted, then the Double Sinking Fund Method is consistent, providing that it is appreciated that during one period there will be a shortfall of income which is exactly balanced by a surplus in another when each is capitalised at the corresponding remunerative rates.

The purpose of this paper is to review the historic evolution of dual rate valuation practice in the UK from the nineteenth century to the present time.

The paper is based on a review of published books, articles and letters dating from 1852.

The study establishes the fact that single rate was the only method in use in the nineteenth century and notes the overlap of two methodologies and beliefs in the first half of the twentieth century. It confirms that by the late 1930s dual rate had replaced single rate and an “establishment opinion” on the essential need to value leaseholds dual rate on the basis of a set of commandments had emerged without any apparent disagreement. This position, with some debated refinements for the effect of tax and treatment of variable profit rents, is shown to continue through the twentieth century and is reaffirmed in standard textbook teaching at the start of the twenty‐first century. The review touches on the criticisms noted by academics in the latter part of twentieth century. It identifies as a key issue the continuing persistent misconception amongst UK valuers that there is a reinvestment assumption in the present value of £1 per annum.

Dual rate principles are shown in the paper to be untenable and the profession is advised to remove the method from future training of valuers and to cease to make any use of the method in the valuation of leasehold investments.

A preceding paper by Baum examined the valuation of reversionary freehold interests, distinguishing between conventional and modern approaches. This paper applies the same approach to the valuation of leaseholds, and falls into two parts. Part 1 examines conventional leasehold valuations and the criticisms that may be made, concluding that both dual rate and single rate conventional valuations should be abandoned except in limited circumstances. Part 2 identifies three alternative modern approaches — real value, rational model and DCF — and compares their use in three general variations of leasehold valuation. The results are compared, and recommendations for their use are made. Finally an overview of the application of modern approaches to investment property valuation is presented.

This introductory paper is the first of three which reconsider what has become an accepted defect in the conventional investment method of valuation.

Index by subjects, compiled by K.G.B. Bakewell covering the following journals: Facilities Volumes 8‐17; Journal of Property Investment & Finance Volumes 8‐17; Property Management Volumes 8‐17; Structural Survey Volumes 8‐17.

Compiled by K.G.B. Bakewell covering the following journals published by MCB University Press: Facilities Volumes 8‐18; Journal of Property Investment & Finance Volumes 8‐18; Property Management Volumes 8‐18; Structural Survey Volumes 8‐18.