for the year ended 31 March 2006

1. Accounting policies

a. Accounting basis

The accounts are prepared on a going concern and an accruals basis under the historic cost convention, modified to include the revaluation of investment properties. They are prepared in accordance with section 2(5) of The Crown Estate Act 1961 and with the directions made thereunder by the Treasury and, where appropriate, with the Companies Act 1985 and Accounting Standards in the United Kingdom.

b. Crown Estate Act 1961 – Statutory provisions

The Crown Estate is a body corporate regulated by statute. The provisions of The Crown Estate Act 1961 specify certain distinctions between capital and revenue reflecting the Report of the Committee on Crown Lands before the Act was passed, to the effect that The Crown Estate resembles a trust, in which the income beneficiary is the Exchequer and the capital is held for Her Majesty and Her Successors. Section 2(4) of the Act requires capital and revenue to be distinguished in the accounts and for provision to be made for recovering capital expenditure from revenue where appropriate and the accounts are prepared on that basis. The section then specifies that:

i) any sum received by way of premium on the grant of a lease shall be carried to revenue account if the lease is for a term of 30 years or less and to capital account if the lease is for a term exceeding 30 years; and

ii) net earnings from mineral workings shall be carried one half to capital account and one half to revenue account.

c. Treasury agreements

By agreement with the Treasury the capital account is charged with:

i) the purchase of leaseholds which are recoverable from revenue over 40 years or the unexpired term of the lease if less;

ii) the cost of all new works and improvements of a wasting nature to investment properties which are recovered from revenue over 25 years; and

iii) the cost of purchasing other assets e.g. office equipment, plant and machinery, which is recoverable from revenue over the expected life of the asset category.

Expected lives are as follows:

Vehicles: 4-10 years depending on nature of vehicle
Plant and equipment: 4-10 years
Computer equipment: 4 years
Office equipment: 4 years

The total of such repayments from revenue to capital is limited to 15 per cent of gross income (as defined in agreement with the Treasury). Also by agreement with the Treasury, earnings on dated gilt-edged stocks are carried one half to capital and one half to revenue. “Earnings” are defined as interest plus or minus gains or losses on disposal. Interest on non-dated securities and short term balances is carried to the revenue account alone.

d. Valuation

The portfolio of land and buildings and other property assets has been valued at 31 March 2006 by professionally qualified external valuers. The valuations have been carried out in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The valuation has been carried out as follows:

Investment properties

Investment properties and those held for development are valued on the basis of market value. Properties in course of development are valued at either the market value of the partially-built development or the market value of the land, plus development costs expended to date.

Marine and mineral assets are valued only where a letting or licence exists, where entry has occurred, or where an interest is expected to provide either a revenue cash flow or a capital receipt within the foreseeable future. Wind farm sites where an option has been granted within round 1 and round 2 of the wind farm tender process have been included. Mineral bearing land, including marine dredged aggregates, is valued on the basis of market value.

All investment properties in the designated area of the Windsor Estate have been valued.

Owner occupied properties

Properties occupied by The Crown Estate are valued on the basis of existing use value, this includes dwellings occupied by The Crown Estate employees and pensioners at Windsor.

e. Disposal of freehold properties

Revaluation reserve released on disposal of a property is transferred to a general capital reserve. In accordance with The Crown Estate Act, capital and revenue is required to be distinguished in the account; book profit or loss on disposal (i.e. the amount by which sales proceeds exceed the property valuation at the last accounting date prior to sale) is therefore not taken to the revenue account, but is also carried to a general capital reserve.

f. Depreciation and amortisation

In accordance with Statement of Standard Accounting Practice No.19, investment properties are revalued annually and the aggregate surplus or deficit is transferred to a revaluation reserve, and no depreciation or amortisation is provided in respect of freehold investment properties and leasehold investment properties. The Commissioners consider that this accounting policy is necessary to provide a true and fair view. Depreciation or amortisation is only one of many factors reflected in the annual valuation and the amount which might otherwise have been shown cannot be separately identified or quantified.

Other fixed assets are not revalued each year as the effect of the revaluation is immaterial.

Depreciation as such is not provided in respect of any Crown Estate asset. However, as stated in note 1(c) above, certain expenditure on properties and fixed assets is recovered from revenue and is treated in the accounts as an operating expense.

g. Operating lease incentives

UITF28 requires landlords in the property sector to treat any incentive for lessees to enter into a lease agreement as a revenue cost and also account for rental income from the commencement of any rent free period. The cost of all lease incentives (such as rent-free periods) is offset against the total rent due and the net rental income is then spread evenly over the shorter of the period from the rent-free or rent commencement date as appropriate, to the date of the next rent review or the lease end date. Contributions made towards tenant’s fit out costs and other costs are charged to capital as new works and improvements and are recovered from revenue over 25 years.

h. Stocks

Stocks comprise estate produce on hand for resale at the year end and stores of supplies held at various estate yards. Produce is valued at the lower of cost and net realisable value. Stores are carried at Commissioners’ valuation.

i. Gilt-edged securities

Gilts are individually valued each year at the lower of cost and middle market price at the balance sheet date.

j. Grants

The Crown Estate is entitled to apply for government grants available to landowners generally e.g. for agricultural improvements, forestry planting etc. In the year a grant is received, it is credited to revenue or capital depending on the classification of the related expenditure.

k. Turnover

Turnover is recorded net of VAT and represents the total value of:

i) rent, royalty and similar payments falling due within the year excluding service charges collected from tenants and held to meet specific expenses;

ii) premiums on leases granted for a term of less than 30 years;

iii) sales of produce; and

iv) miscellaneous fees etc.

l. Taxation

The Crown Estate is not subject to corporation, income or capital gains tax. The revenue surplus is paid annually to the Exchequer and will be used for the benefit of the taxpayer.

m. Revaluation reserve

The investment portfolio was valued at 31 March 1987 and this value is shown in the first published balance sheet as the “original cost” of properties. The revaluation reserve reflects changes in the value of properties owned at 31 March 1987 and of properties which have been purchased since that date.

2. Analysis of gross surplus

Other expenditure includes the movement on the provision for bad and doubtful debts as follows:

3. Administrative expenses

Administrative expenses comprise:

4. Indirect operating expenses

Indirect operating expenses comprise additional costs incurred by The Crown Estate from the re-organisation of its operations. These costs include early retirement, redundancy payments and associated costs and have been separately disclosed because of their significance and impact.

5. Employee information

a. The total cost of Crown Estate employees (including Commissioners) included in direct operating costs, indirect operating expenses and administrative expenses during the year was as follows:

b. The average number of employees during the year was 386 made up as follows:

c. The table below shows the number of employees (excluding the Chief Executive and Board members) of The Crown Estate whose remuneration during the year was within the bands stated:

6. Staff pensions

Two defined benefit pension schemes operate within The Crown Estate providing retirement and related benefits to all eligible employees based on individual final emoluments. The total pension costs and benefits paid were £1,748,061 in 2005/06 (£1,316,057 in 2004/05). The schemes are as follows:-

a. The Principal Civil Service Pension Scheme

The PCSPS is an unfunded multi-employer defined benefit scheme but The Crown Estate is unable to identify its share of the underlying assets and liabilities. A full actuarial valuation was carried out as at 31 March 2003. Details can be found in the resource accounts of the Cabinet Office: Civil Superannuation.

For 2005/06, employers’ contributions of £1,316,083 were payable to the PCSPS (£902,239 in 2004/05) at one of four rates in the range 16.2 to 24.6 per cent of pensionable pay, based on salary bands. Rates will remain the same next year, subject to revalorisation of the salary bands. Employer contributions are to be reviewed every four years following a full scheme valuation by the Government Actuary. The contribution rates reflect benefits as they are accrued, not when the costs are actually incurred, and reflect past experience of the scheme.

b. The Crown Estate pension scheme

The Crown Estate pension scheme is a defined benefit scheme. The assets of the scheme are held separately from those of The Crown Estate, in an independently administered fund. In accordance with FRS 17 the current service costs of the scheme are charged to the revenue account. The current service cost and contributions are determined by the Scheme Actuary on the basis of triennial valuations using the projected unit method. At 30 September 2002 the value of the scheme’s assets was £9.14 million and the actuarial value of the liabilities exceeded these assets by 41 per cent. The principal actuarial assumptions for the valuation are that the pre-retirement investment yield would in the long term exceed earnings increases by 4.5 per cent per annum and the post-retirement investment yield would exceed pension increases by 2.5 per cent per annum. An actuarial valuation of The Crown Estate pension scheme was undertaken at 30 September 2005, which indicated an increased scheme deficit. These figures, together with an action plan to reduce the deficit, are currently under discussion with the pension scheme trustees.

7. FRS 17 retirement benefits

a. Balance sheet and notes

The valuation of The Crown Estate pension scheme used for FRS 17 disclosures has been based on a fair value of the assets of the scheme measured at 31 March 2006. The principal actuarial assumptions are:

For 2005/06 employer contributions were £431,977 (£413,818 in 2004/05) and the agreed contribution rate for the coming year is 18.5 per cent of pensionable pay.

The assets in The Crown Estate pension scheme and the expected rates of return were:

b. Analysis of amount charged to operating surplus

c. Analysis of amount credited to other finance income

d. Analysis of amount recognised in statement of total recognised gains and losses (STRGL)

e. Movements in deficit during the year

8. Recovery of capital expenditure

9. Financial instruments

This disclosure excludes short term debtors and creditors. The Crown Estate may not be held other than in land, gilts or cash. Investment in equities or outside the United Kingdom is not permitted.

The cash holdings not needed for operational purposes are maintained in overnight “on call” accounts with major United Kingdom clearing banks, thereby avoiding liquidity risks. These deposits are on a variable interest basis. There is no currency risk as it is only permitted to hold funds in sterling and there are no significant transactions in currencies other than sterling. The Crown Estate monitors the rates offered by the banks and transfers deposits as appropriate to maximise returns. As The Crown Estate is not permitted to place money for periods longer than overnight there is no maturity profile in respect of cash deposits.

The Crown Estate’s non-cash financial assets comprise solely of gilts managed on its behalf by the Commissioners for the Reduction of National Debt. Investment in and sale of these assets is made on the basis of advice given by the CRND and the funding requirements of the capital programme.

10. Parliamentary Resource finance

The Crown Estate Act 1961 provides that monies are provided by Parliament in respect of Commissioners’ salaries and the expense of their Office. The total of such expenses chargeable to the resource account for the current year is shown on the face of the revenue account and the detail is reported separately to Parliament as a resource account.

11. Statutory transfers

12. Consolidated Fund payment

In accordance with section 1 of the Civil List Act 1952, the revenue surplus is due to the Consolidated Fund. As The Crown Estate is not permitted by statute to borrow, the payment to the Consolidated Fund in respect of the net surplus for the year is agreed with the Treasury taking into account The Crown Estate’s short term financing requirements.

Leasehold properties

The valuation of Crown Estate properties at 31 March 2006 includes £136.1 million (£108.6 million at 31 March 2005) in respect of leasehold properties analysed as follows:

The leasehold additions figure includes £17.3 million in respect of leasehold interests on Crown Estate freeholds bought back in the course of the year ended 31 March 2006 (£17.6 million in 2004/05).

14. Tangible Assets – owner occupied properties

15. Tangible assets – Other fixed assets

16. Mortgages and loans

The mortgage advance is secured. Interest is payable quarterly.

17. Other investments

Other investments comprise:

Antiques and paintings are valued by recognised experts every three years on a rolling basis. During 2005/06 these assets were valued by an independent valuer and held in the balance sheet at their estimated auction value.

18. Stocks and work in progress

Stocks and work in progress comprise:

19. Debtors

Debtors comprise:

20. Gilt-edged securities

The market value of gilt-edged securities held at 31 March 2006 was £33.6 million (£33.2 million at 31 March 2005).

21. Creditors: due within one year

Creditors and accrued charges comprise:

22. Subsidiary undertakings

Several Crown Estate properties are managed by management companies under the control of The Crown Estate Commissioners. These subsidiary undertakings are not material by value in the context of The Crown Estate financial results and therefore consolidated statements have not been prepared.

The companies concerned, all of which are registered in England, are as follows:

Fitzgeorge and Fitzjames Management Company Ltd

RM Site Management Ltd

Urbanlease Property Management Company Ltd

23. Capital commitments

At 31 March 2006 The Crown Estate had committed to make capital expenditure of £104 million (£101 million at 31 March 2005) and had authorised additional expenditure of £16 million (£5 million at 31 March 2005).

24. Contingent liabilities

At the balance sheet date The Crown Estate had no contingent liabilities.

25. Related party transactions

During the year, none of the Commissioners, members of the key management staff or other related parties have undertaken any material transactions with The Crown Estate with the exception of Philip Everett, the Deputy Ranger at Windsor Great Park who is employed in a personal capacity through Smiths Gore Chartered Surveyors where he is a salaried partner. Smiths Gore are amongst The Crown Estate’s managing agents and as such receive fees for their services. Philip Everett had no involvement in determining either the appointment or remuneration of Smiths Gore in this capacity. During the year Smiths Gore were paid a total in fees of £919,118 (£913,210 in 2004/05), for services they provided across the whole of The Crown Estate.

26. Third party deposits

At 31 March 2006 The Crown Estate held on deposit on behalf of third parties £14,632,011 (£16,565,278 at 31 March 2005).