Property transfers between categories

Property groups change their minds about buildings all the time: they move out of offices and let them, decide to redevelop a let building for sale, or let flats they could not sell. Each change can move the property into a different category, and where the difference on transfer goes, profit or other comprehensive income, depends on the direction of travel. This guide sets out the evidence needed, the measurement rules for each transfer and four worked examples.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 4 minute read.

Short answer

Property transfers into or out of investment property are allowed only when there is a change in use, shown by evidence such as starting owner occupation, starting development for sale or signing a lease with a third party; a change in intention alone is not enough. Under the cost model, a transfer is made at carrying amount. Under the fair value model, property leaving investment property moves at its fair value, which becomes its deemed cost. Property arriving from inventory is remeasured to fair value with the difference in profit or loss, and owner-occupied property arriving is revalued under IAS 16, with a gain in other comprehensive income. In this guide's examples, an office the owner moves out of, carried at CU 30 million and worth 45 million, creates a revaluation surplus of 15 million, while unsold flats let to tenants, costing 20 million and worth 26 million, give a gain of 6 million in profit.

At a glance

When
Only on a change in use
Evidence
Actions, not intentions
Cost model
Carrying amount, no gain
Leaving IP at fair value
Fair value becomes deemed cost
Inventory to IP
Difference in profit
Own use to IP
Revaluation, gain in OCI
Property transfers between categoriesWhen: Only on a change in use; Evidence: Actions, not intentions; Cost model: Carrying amount, no gain; Leaving IP at fair value: Fair value becomes deemed cost; Inventory to IP: Difference in profit; Own use to IP: Revaluation, gain in OCI.KEY FACTS AT A GLANCEProperty transfers between categoriesWhenOnly on a change in useEvidenceActions, not intentionsCost modelCarrying amount, no gainLeaving IP at fair valueFair value becomes deemedcostInventory to IPDifference in profitOwn use to IPRevaluation, gain in OCITax BakersProperty transfers between categoriesWhen: Only on a change in use; Evidence: Actions, not intentions; Cost model: Carrying amount, no gain; Leaving IP at fair value: Fair value becomes deemed cost; Inventory to IP: Difference in profit; Own use to IP: Revaluation, gain in OCI.KEY FACTS AT A GLANCEProperty transfers betweencategoriesWhenOnly on a change in useEvidenceActions, not intentionsCost modelCarrying amount, no gainLeaving IP at fair valueFair value becomes deemed costInventory to IPDifference in profitOwn use to IPRevaluation, gain in OCITax Bakers
Key facts at a glance, as set out in this guide.

When can property be transferred?

IAS 40 permits a transfer into or out of investment property only when there is a change in use: the property starts or stops meeting the definition of investment property, and there is evidence of that change. Since amendments effective in 2018, the standard makes clear that its list of examples is not exhaustive, that property under construction is covered too, and that a change in management's intentions, on its own, is not evidence of a change in use.

How transfers are measured under the fair value modelHow transfers are measured under the fair value modelMeasured atDifference goes toOwn use toinvestment propertyFair valueRevaluationsurplus, OCIInventory toinvestment propertyFair valueProfit or lossInvestment propertyto own useFair value, asdeemed costProfit or loss, todate of changeInvestment propertyto inventoryFair value, asdeemed costProfit or loss, todate of changeSelf-built propertycompletedFair valueProfit or loss
Only the move from own use sends the gain to OCI.

What evidence shows a change in use?

  • Owner-occupied to investment property: the company moves out and the building is let, or marketed for letting, to third parties.
  • Investment property to owner-occupied: the company moves in, or starts fitting the building out for its own use.
  • Investment property to inventory: development with a view to sale begins, such as converting a let office block into flats for sale, supported by planning applications and construction contracts.
  • Inventory to investment property: an operating lease is signed with a third party for property previously held for sale, such as unsold flats let to tenants.

Property transfers: four worked examples

CU millionCarrying amount beforeFair value at transferDifferenceWhere it goes
1. Owner moves out of its office and lets it30.0 (cost 40.0 less depreciation 10.0)45.0+15.0Other comprehensive income, revaluation surplus
2. Unsold flats let to tenants20.0 (cost)26.0+6.0Profit or loss
3. Let block redeveloped for sale48.0 (last valuation)50.0+2.0Profit or loss, then 50.0 is the inventory's cost
4. Self-built investment property completed70.0 (cost)85.0+15.0Profit or loss

In example 1, the company depreciates the office up to the date of the change and then revalues it under IAS 16, so the gain goes to a revaluation surplus in equity, not to profit. Had the fair value been 25.0, the loss of 5.0 would have gone to profit or loss. In example 3, the block is remeasured to fair value up to the transfer, as for any investment property at fair value, and 50.0 becomes the inventory's deemed cost: if the company then spends 30.0 converting it and sells the flats for 100.0, it reports revenue of 100.0 and cost of sales of 80.0. Example 4 applies where the property was held at cost during construction because its fair value could not be measured reliably.

What if the company simply decides to sell?

A decision to sell investment property without redeveloping it is not a change in use. The property stays investment property, measured as before, until it is sold. If the sale is highly probable within a year, it is presented as held for sale under IFRS 5, but investment property at fair value keeps its fair value measurement, because IFRS 5's measurement rules do not apply to it.

How does the cost model handle transfers?

Simply: under the cost model, transfers between investment property, owner-occupied property and inventory are made at the carrying amount, so no gain or loss arises and the property's cost carries over for measurement and disclosure. The fair value disclosed for investment property under the cost model starts or stops including the property from the date of transfer.

What happens to a revaluation surplus later?

The surplus created when owner-occupied property moves to investment property stays in equity. When the property is eventually sold, the surplus is transferred directly to retained earnings; it is never reclassified to profit or loss. Later fair value movements, once the property is investment property, go to profit or loss as usual.

Does a transfer affect deferred tax?

It can. Moving a property into or out of investment property at fair value changes the way the company expects to recover it, and so can change the tax rate and tax base used. Investment property at fair value is presumed to be recovered through sale; inventory is recovered through sale in the ordinary course of business, which may be taxed differently. Deferred tax is remeasured at the transfer date, with the effect following the gain: in profit or loss, or in other comprehensive income for example 1. See deferred tax on investment property.

How does US GAAP compare?

US GAAP has no investment property category, so the question becomes whether real estate is held and used or held for sale. Property is carried at depreciated cost either way, with no fair value gains on reclassification. See inventory or investment property and real estate accounting.

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Questions people ask

When can investment property be transferred to inventory?

When development with a view to sale begins, which is evidence of a change in use; a decision to sell without redevelopment is not.

At what amount is investment property transferred to inventory under the fair value model?

At fair value at the date of change in use, which becomes the inventory's deemed cost.

Where does the gain go when owner-occupied property becomes investment property?

To other comprehensive income as a revaluation surplus under IAS 16; a loss goes to profit or loss unless it reverses an earlier surplus.

Is a change in management's intention enough to transfer property?

No. IAS 40 requires evidence of an actual change in use.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 40 Investment Property
  2. IFRS Foundation: IAS 16 Property, Plant and Equipment

Rules and fees change. If you are reading this long after October 7, 2026, confirm the figures with the source before you rely on them.

Real estateInventory or investment property: classifying propertyReal estateInvestment property: fair value or costReal estateDeferred tax on investment property

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This guide is general information. It is not tax or legal advice for your situation.