11 – Auditors' remuneration

The total remuneration payable by the Group, excluding VAT and any overseas equivalent thereof, to its principal auditors, Ernst & Young LLP, and its associates in respect of the audit of these financial statements is shown below, together with fees payable in respect of other work.

		2006 £000	2005 £000
Fees payable to Ernst & Young LLP for the statutory audit of the Aviva Group and Company financial statements		1,452	1,525
Fees payable to Ernst & Young LLP and its associates for other services to Group companies:
Audit of Group subsidiaries pursuant to legislation		7,507	7,453
Other services pursuant to legislation		2,326	1,834
Tax services		187	114
Services relating to information technology		40	177
Services relating to corporate finance transactions		1,432	762
All other services	– Supplementary reporting (see below)	885	862
	– Other supplementary services	1,660	995
Fees payable to Ernst & Young LLP for services to Group pension schemes
Audit of Group pension scheme		70	49
		15,559	13,771

In addition to the above amounts payable to the principal auditors, fees for audit services of £2.1 million (2005: £2.8 million) were payable to other firms. The total fees payable for audit services were therefore £11.1 million (2005: £11.8 million).

Fees for supplementary reporting are in respect of the audit of the Group’s EEV figures. Although EEV is the Group’s primary management reporting basis and our disclosures require a full audit, the relevant fees are not classified as being for statutory audit.

12 – Tax

(a) Tax charged to the income statement

(i) The total tax charge comprises:

	2006 £m	2005 £m
Current tax
For this year	1,022	799
Prior year adjustments	(287)	(212)
Total current tax	735	587
Deferred tax
Origination and reversal of timing differences	221	881
Changes in tax rates or tax laws	(7)	(5)
Write-down of deferred tax assets	(15)	89
Total deferred tax	199	965
Total tax charged to income statement (note 12c)	934	1,552

(ii) The Group, as a proxy for policyholders in the UK, Ireland and Australia, is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Irish and Australian life insurance policyholder returns is included in the tax charge. The tax expense attributable to policyholders’ returns included in the charge above is £346 million (2005: £922 million).

(iii) The tax charge can be analysed as follows:

	2006 £m	2005 £m
UK tax	479	1,150
Overseas tax	455	402
	934	1,552

(iv) Unrecognised tax losses and temporary differences of previous years were used to reduce current tax expense and deferred tax expense by £73 million and £24 million, respectively (2005: £49 million and £33 million, respectively).

(v) Deferred tax charged to the income statement represents movements on the following items:

	2006 £m	2005 £m
Long-term business technical provisions and other insurance items	364	(107)
Deferred acquisition costs	(47)	56
Unrealised (gains)/losses on investments	(144)	562
Provisions and other temporary differences	(192)	35
Impairment of assets	1	(1)
Pensions and other post-retirement obligations	166	19
Unused losses and tax credits	(247)	247
Other temporary differences	298	154
Total deferred tax charged to income statement	199	965

(b) Tax charged/(credited) to equity

(i) The total tax charge/(credit) comprises:

	2006 £m	2005 £m
Current tax	(9)	(13)
Deferred tax	14	(262)
Total tax charged/(credited) to equity	5	(275)

Deferred tax charged to equity includes £29 million credit (2005: £213 million credit) in respect of pensions and other post-retirement obligations, and a deferred tax charge of £43 million (2005: £49 million credit) in respect of unrealised gains on investments.

(ii) The tax credit attributable to policyholders’ returns included in the credit above is £nil (2005: £3 million).

(c) Tax reconciliation

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:

	2006 £m	2005 £m
Profit before tax	3,323	3,450
Tax calculated at standard UK corporation tax rate of 30% (2005: 30%)	997	1,035
Different basis of tax for UK life insurance	209	616
Adjustment to tax charge in respect of prior years	(287)	(253)
Non-assessable dividends	(55)	(26)
Non-taxable profit on sale of subsidiaries and associates	(80)	(4)
Disallowable expenses	46	55
Different local basis of tax on overseas profits	201	168
Deferred tax assets not recognised	(60)	(25)
Other	(37)	(14)
Total tax charge to income statement (note 12a)	934	1,552

13 – Earnings per share

(a) Basic earnings per share

(i) The profit attributable to ordinary shareholders is:

	2006				2005
	Operating profit £m	Adjusting items £m	Total £m		Operating profit £m	Adjusting items £m	Total £m
Profit before tax	3,110	(133)	2,977		2,128	400	2,528
Tax attributable to shareholders’ profits	(725)	137	(588)		(536)	(94)	(630)
Profit for the year	2,385	4	2,389		1,592	306	1,898
Minority interests	(185)	11	(174)		(131)	–	(131)
Preference dividends	(17)	–	(17)		(17)	–	(17)
Coupon payments in respect of direct capital instrument (net of tax)	(37)	–	(37)		(29)	–	(29)
Profit attributable to ordinary shareholders	2,146	15	2,161		1,415	306	1,721

(ii) Basic earnings per share is calculated as follows:

	2006				2005
	Before tax £m	Net of tax, minorities, preference dividends and DCI £m	Per share p		Before tax £m	Net of tax, minorities, preference dividends and DCI £m	Per share p
Operating profit attributable to ordinary shareholders	3,110	2,146	86.9		2,128	1,415	60.5
Non-operating items:
– impairment of goodwill (note 15)	(94)	(94)	(3.8)		(43)	(43)	(1.8)
– Amortisation and net impairment of acquired additional value of in-force business (note 16 - 18)	(100)	(83)	(3.4)		(73)	(73)	(3.1)
– Amortisation and net impairment of intangibles (note 16)	(70)	(48)	(1.9)		(45)	(42)	(1.8)
– Financial services compensation scheme and other levies	6	4	0.2		–	–	–
– Short-term fluctuation in return on investments backing general insurance and health business (note 8b)	149	189	7.7		517	430	18.2
– Profit on the disposal of subsidiary and associates (note 3b)	222	235	9.5		153	110	4.7
– Integration and restructuring costs (note 3c)	(246)	(188)	(7.7)		(109)	(76)	(3.2)
Profit attributable to ordinary shareholders	2,977	2,161	87.5		2,528	1,721	73.5

Earnings per share has been calculated based on the operating profit before impairment of goodwill and other non-operating items, after tax, attributable to ordinary shareholders, as well as on the profit attributable to ordinary shareholders. The directors believe the former earnings per share figure provides a better indication of operating performance.

(iii) The calculation of basic earnings per share uses a weighted average of 2,469 million (2005: 2,340 million) ordinary shares in issue, after deducting shares owned by the employee share trusts. The actual number of shares in issue at 31 December 2006 was 2,566 million (2005: 2,396 million).

(b) Diluted earnings per share

Diluted earnings per share is calculated as follows:

	2006				2005
	Total £m	Weighted average number of shares m	Per share p		Total £m	Weighted average number of shares m	Per share p
Profit attributable to ordinary shareholders	2,161	2,469	87.5		1,721	2,340	73.5
Dilutive effect of share awards and options	–	27	(0.9)		–	20	(0.6)
Diluted earnings per share	2,161	2,496	86.6		1,721	2,360	72.9

Diluted earnings per share on operating profit attributable to ordinary shareholders is 86.0 pence (2005: 60.0 pence).

14 – Dividends and appropriations

	2006 £m	2005 £m
Ordinary dividends declared and charged to equity in the year
Final 2004 – 16.00 pence per share, paid on 17 May 2005	–	364
Interim 2005 – 9.83 pence per share, paid on 17 November 2005	–	234
Final 2005 – 17.44 pence per share, paid on 17 May 2006	418	–
Interim 2006 – 10.82 pence per share, paid on 17 November 2006	275	–
	693	598
Preference dividends declared and charged to equity in the year	17	17
Coupon payments on direct capital instrument	52	42
	762	657

Subsequent to 31 December 2006, the directors proposed a final dividend for 2006 of 19.18 pence per ordinary share, £492 million in total, making a total dividend for the year of 30.00 pence (2005: 27.27 pence). Subject to approval by shareholders at the AGM, the dividend will be paid on 17 May 2007 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2007.

Interest on the direct capital instrument issued in November 2004 is treated as an appropriation of retained profits and, accordingly, it is accounted for when paid. Tax relief is obtained at a rate of 30%.

Irish shareholders who are due to be paid a dividend denominated in euros will receive a payment at the exchange rate prevailing on 28 February 2007.

15 – Goodwill

(a) Carrying amount

	2006 £m	2005 £m
Gross amount
At 1 January	2,359	1,225
Acquisitions	761	1,074
Additions	32	104
Disposals	(8)	(21)
Foreign exchange rate movements	(58)	(23)
At 31 December	3,086	2,359
Accumulated impairment
At 1 January	(85)	(41)
Impairment losses	(94)	(43)
Foreign exchange rate movements	3	(1)
At 31 December	(176)	(85)
Carrying amount at 31 December	2,910	2,274

Goodwill additions relate to contingent consideration paid in respect of past acquisitions of subsidiaries. Goodwill arising on acquisitions completed before 1 January 1998 was charged directly to reserves. Goodwill arising on the Group’s investment in joint ventures and associates is included within the carrying value of those investments (see notes 17 and 18).

(b) Goodwill allocation and impairment testing

A summary of the goodwill and intangibles with indefinite useful lives allocated to cash-generating units is presented below.

	UK (General insurance and health)			RAC (non-insurance operations)			Spain (Long-term business)			United States (Long-term business)			Other			Total
	2006 £m	2005 £m		2006 £m	2005 £m		2006 £m	2005 £m		2006 £m	2005 £m		2006 £m	2005 £m		2006 £m	2005 £m
Carrying amount of goodwill	314	311		892	892		518	503		635	–		551	568		2,910	2,274
Carrying amount of intangibles with indefinite useful lives	185	185		36	75		–	–		–	–		42	42		263	302
	499	496		928	967		518	503		635	–		593	610		3,173	2,576

As explained in accounting policy M, the carrying amount of goodwill and intangible assets with indefinite useful lives is reviewed at least annually or when circumstances or events indicate there may be uncertainty over this value. The tests led to impairment of goodwill of £94 million.

Goodwill and intangibles with indefinite useful lives have been tested for impairment in these businesses as follows:

UK (general insurance and health)

The recoverable amount of the UK general insurance and health unit has also been determined based on a value in use calculation. The calculation uses cash flow projections based on business plans approved by management covering a three year period and a risk adjusted discount rate of 10.45% (2005: 10.45%). Cash flows beyond that three year period have been extrapolated using a steady 3% growth rate (2005: 3%). The recoverable amount significantly exceeds the carrying value of the cash generating unit including goodwill and intangible assets with indefinite useful lives and a reasonably possible change in a key assumption will not cause the carrying value of the cash generating unit to exceed its recoverable amount.

Key assumptions used for the calculation were:

– Budgeted operating profit represents the operating profit in the business plans, approved by management and as such reflects the best estimate of future profits based on both historical experience and expected growth rates for the UK general insurance industry. Some of the assumptions that underline the budgeted operating profit include market share, premium rate changes, claims inflation and commission rates.

– Growth rate represents the rate used to extrapolate future cash flows beyond the business plan period and has been based upon latest information available regarding future and past growth rates. The growth rate is considered to be consistent with both past experience and external sources of data (ABI Annual Market Statistics).

RAC (non-insurance operations)

The recoverable amount of the RAC (non-insurance operations) has also been determined based on a value in use calculation. The calculation uses cash flow projections based on business plans approved by management covering a three year period and a risk adjusted discount rate of 10.27% (2005: 10.45%). Cash flows beyond that three year period have been extrapolated using a steady 2% growth rate. The recoverable amount significantly exceeds the carrying value of the cash generating unit including goodwill and intangible assets with indefinite useful lives and a reasonably possible change in a key assumption will not cause the carrying value of the cash generating unit to exceed its recoverable amount.

Key assumptions used for the calculation were:

– Budgeted operating profit represents the operating profit in the business plans, approved by management and as such reflects the best estimate of future profits based on both historical experience and expected growth. Some of the assumptions that underline the budgeted operating profit include market share, fee income and customer numbers.

Spain (long-term business)

The recoverable amount of the Spanish unit has been determined based on a fair value less costs to sell calculation. This calculation is an actuarially-determined appraisal value and is based on the embedded value of the business together with the present value of expected profits from future new business. The recoverable amount significantly exceeds the carrying value of the cash generating unit including goodwill and a reasonably possible change in a key assumption will not cause the carrying value of the cash generating unit to exceed its recoverable amount.

Key assumptions used for the calculation were:

– Embedded value represents the shareholder interest in the life business and is calculated in accordance with the European Embedded Value (EEV) principles. The embedded value is the total of the net worth of the life business and the value of the in-force business. The underlying methodology and assumptions have been reviewed by a firm of actuarial consultants and by the Group’s auditors;

– New business contribution represents the present value of projected future distributable profits generated from business written in a period. This is based on business plans approved by management;

– Growth rate represents the rate used to extrapolate new business contributions beyond the business plan period, and is based on management’s best estimate of future growth. The rate is in line with industry expectations; and

– Risk adjusted discount rate represents the rate used to discount expected profits from future new business. The discount rate is a combination of a risk-free rate and a risk margin to make prudent allowance for the risk that experience in future years may differ from that assumed.

United States (long-term business)

The carrying value of the Group’s cash-generating unit in the United States is principally represented by the former operations of AmerUs Group Co. (AmerUs), which was acquired by the Group on 15 November 2006. The unit’s current business plan is consistent with the assumptions made at the time of the acquisition in determining the appraisal value of AmerUs, which was in excess of its current carrying value. Since the acquisition date, the assets and liabilities making up the unit have not changed significantly, and there have been no other events which might have materially affected the recoverable amount of the unit.

Other

During the year, goodwill allocated to a long-term business cash-generating unit in Germany, Berlinische, was tested for impairment. Following the impairment test, an impairment charge of £94 million has been recognised in the income statement. The impairment charge arose as a result of the fall off in contribution from new business in 2006 and current adverse experience within the in-force portfolio.

16 – Acquired value of in-force business (AVIF) and intangible assets

	AVIF £m	Intangible assets with indefinite useful lives £m	Intangible assets with finite useful lives £m	Total £m
Gross amount
At 1 January 2005	613	44	189	846
Additions	13	–	60	73
Acquisition of subsidiaries	–	260	73	333
Foreign exchange rate movements	(12)	(2)	1	(13)
At 31 December 2005	614	302	323	1,239
Additions	22	–	58	80
Acquisition of subsidiaries	1,642	–	470	2,112
Disposals	–	–	(14)	(14)
Transfers	–	(39)	39	–
Foreign exchange rate movements	(93)	–	(23)	(116)
At 31 December 2006	2,185	263	853	3,301
Accumulated amortisation
At 1 January 2005	(248)	–	(82)	(330)
Amortisation for the year	(26)	–	(39)	(65)
Impairment losses recognised	(29)	–	(6)	(35)
Foreign exchange rate movements	4	–	(1)	3
At 31 December 2005	(299)	–	(128)	(427)
Amortisation for the year	(58)	–	(72)	(130)
Disposals	–	–	1	1
Impairment losses recognised	(28)	–	2	(26)
Foreign exchange rate movements	6	–	3	9
At 31 December 2006	(379)	–	(194)	(573)
Carrying amount
At 31 December 2005	315	302	195	812
Less: Amounts classified as held for sale	–	–	(9)	(9)
	315	302	186	803
At 31 December 2006	1,806	263	659	2,728

Additions to gross AVIF includes £20 million for the movement in the shadow adjustment made to the carrying value of the AVIF in Aviva USA.

Intangible assets with indefinite useful lives comprise the RAC and BSM brands, and the value of the Union Financière de France Banque sales force, where the existing lives of the assets and their competitive position in, and the stability of, their respective markets support this classification. Impairment testing on intangibles is covered in note 15(b).

17 – Investments in joint ventures

(a) Carrying amount

	Goodwill and intangibles £m	Equity interests £m	Loans £m	Total £m
At 1 January 2005	–	1,255	–	1,255
Share of results before tax	–	332	–	332
Share of tax	–	(6)	–	(6)
Share of profit after tax	–	326	–	326
Acquisitions and additions	167	587	–	754
Disposals and reduction in Group interests	–	(43)	–	(43)
Reclassification to subsidiaries	–	(8)	–	(8)
Dividends received	–	(34)	–	(34)
Additional loans	–	–	128	128
Foreign exchange rate movements	–	1	–	1
Other movements and reclassifications as held for sale	(167)	(83)	–	(250)
Movements in carrying amount	–	746	128	874
At 31 December 2005	–	2,001	128	2,129
Share of results before tax	–	465	–	465
Share of tax	–	(3)	–	(3)
Share of profit after tax	–	462	–	462
Acquisitions and additions	–	372	–	372
Disposals and reduction in Group interests	–	(127)	–	(127)
Reclassification to subsidiaries	–	(93)	–	(93)
Dividends received	–	(59)	–	(59)
Additional loans	–	–	113	113
Foreign exchange rate movements	–	(2)	–	(2)
Movements in carrying amount	–	553	113	666
At 31 December 2006	–	2,554	241	2,795

The loans are not secured and no guarantees were received in respect thereof. They are interest-bearing and are repayable on termination of the relevant partnership.

(b) Property management undertakings

(i) As part of their investment strategy, the UK and certain European long-term business policyholder funds have invested in a number of property limited partnerships (PLPs), either directly or via property unit trusts (PUTs), through a mix of capital and loans. The PLPs are managed by general partners (GPs), in which the long-term business shareholder companies hold equity stakes and which themselves hold nominal stakes in the PLPs. The PUTs are managed by a Group subsidiary.

Most of the PLPs have raised external debt, secured on their respective property portfolios. The lenders are only entitled to obtain payment, of both interest and principal, to the extent that there are sufficient resources in the respective PLPs. The lenders have no recourse whatsoever to the policyholder or shareholders’ funds of any company in the Aviva Group.

Accounting for the PUTs and PLPs as subsidiaries, joint ventures or other financial investments depends on the shareholdings in the GPs and the terms of each partnership agreement. Where the Group exerts control over a PLP, it has been treated as a subsidiary and its results, assets and liabilities have been consolidated. Where the partnership is managed by a contractual agreement such that no party exerts control, notwithstanding that the Group’s partnership share in the PLP (including its indirect take via the relevant PUT and GP) may be greater than 50%, such PUTs and PLPs have been classified as jointly-controlled entities. These are accounted for as joint ventures, and are covered in this note. Where the Group holds minority stakes in PLPs, with no disproportionate influence, the relevant investments are included in financial investments at their fair value.

(ii) The principal joint ventures are as follows:

Company	GP proportion held	PLP proportion held
Airport Property Partnership	50.0%	50.0%
Apia Regional Office Fund	50.0%	61.3%
Ashtenne Industrial Partnership	66.7%	38.8%
The Junction Limited Partnership	50.0%	46.0%
The Mall Limited Partnership	50.0%	33.5%
Queensgate Property Partnership Limited	50.0%	50.0%
Quercus Property Partnership Limited	50.0%	58.4%

All the above entities perform property ownership and management activities, and are incorporated and operate in Great Britain. All these investments are held by subsidiary entities.

(c) Other

The Group also has a 50% holding in Aviva-COFCO Life Insurance Company Limited, a life assurance company incorporated and operating in China. These shares are held by the Company, with a share of net assets of £18 million (2005: £10 million) and a fair value of £35 million (2005: £22 million).

(d) Additional information

Summarised aggregate financial information on the Group’s interests in its joint ventures is as follows:

	2006 £m	2005 £m
Income	510	394
Expenses	(45)	(62)
Share of results before tax	465	332
Long-term assets	4,273	3,333
Current assets	126	116
Share of total assets	4,399	3,449
Long-term liabilities	(1,695)	(1,311)
Current liabilities	(150)	(137)
Share of total liabilities	(1,845)	(1,448)
Share of net assets	2,554	2,001

The joint ventures have no significant contingent liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities in relation to its interests in the joint ventures.

18 – Investments in associates

(a) Carrying amount

	Goodwill £m	Equity interests £m	Loans £m	Total £m
At 1 January 2005	247	615	11	873
Share of results before tax	–	39	–	39
Share of tax	–	(7)	–	(7)
Share of results after tax	–	32	–	32
Amortisation of acquired value of in-force business	–	(18)	–	(18)
Share of profit after tax	–	14	–	14
Acquisitions and additions	5	65	–	70
Fair value (losses) taken to equity	–	(2)	–	(2)
Dividends received	–	(61)	–	(61)
Foreign exchange rate movements	–	(4)	–	(4)
Other movements and reclassifications as held for sale	–	(5)	–	(5)
Movements in carrying amount	5	7	–	12
At 31 December 2005	252	622	11	885
Share of results before tax	–	48	–	48
Share of tax	–	(11)	–	(11)
Share of results after tax	–	37	–	37
Amortisation of acquired value of in-force business	–	(14)	–	(14)
Share of profit after tax	–	23	–	23
Acquisitions and additions	28	10	–	38
Disposals	–	(26)	–	(26)
Dividends received	–	(12)	–	(12)
Foreign exchange rate movements	–	(4)	–	(4)
Loans repaid	–	–	(9)	(9)
Movements in carrying amount	28	(9)	(9)	10
At 31 December 2006	280	613	2	895

The loans are not secured and no guarantees were received in respect thereof, and bear interest at an annual rate of 4.2%.

(b) The principal associates included above are:

Company	Type of business	Class of share	Proportion held	Country of incorporation and operation
Aviva Life Insurance Company India Pvt. Limited	Insurance	Ordinary Rs1 shares	26.0%	India
RBSG Collective Investments Limited	Investment	Ordinary £1 shares	49.99%	Great Britain
RBS Life Investments Limited	Insurance	Ordinary £1 shares	49.99%	Great Britain
The British Aviation Insurance Company Limited	Insurance	Ordinary £1 shares	38.1%	Great Britain

All investments in principal associates are unlisted and are held by subsidiaries.

In July 2006, our French operation, Aviva France, sold its holding in ProCapital SA, an online brokerage company, to Credit Mutuel for £98 million. The sale resulted in a profit on disposal of £79 million (see note 3b).

(c) Additional information

Summarised aggregate financial information on the Group’s interests in its associates is as follows:

	2006 £m	2005 £m
Share of revenues	427	277
Share of results before tax	48	39
Share of assets	3,111	2,897
Share of liabilities	(2,498)	(2,275)
Share of net assets	613	622

The associates have no significant contingent liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities in relation to its interest in the associates.

(d) Impairment testing

The Group’s investments in RBS Life Investments Limited and RBSG Collective Investments Limited have been tested for impairment by comparing their carrying values (which include goodwill which arose on their acquisition) with their recoverable amounts. The recoverable amounts for both the investments have been determined based on value in use calculations. The calculations use cash flow projections based on business plans approved by management covering a five year period and a risk adjusted discount rate of 6.8%. Cash flows beyond that five year period have been extrapolated using a growth rate of 4.5%.The recoverable amounts significantly exceed the carrying values of both the investments and a reasonably possible change to the key underlying assumptions will not cause the carrying values of the investments to exceed their recoverable amounts.

19 – Property and equipment

	Properties under construction £m	Owner-occupied properties £m	Motor vehicles £m	Computer equipment £m	Other assets £m	Total £m
Cost or valuation
At 1 January 2005	57	441	27	582	327	1,434
Additions	10	2	18	106	63	199
Capitalised expenditure on existing assets	7	–	–	–	–	7
Acquisitions of subsidiaries	–	35	44	9	49	137
Disposals	(19)	(7)	–	(42)	(70)	(138)
Fair value gains (see note 32b)	–	32	–	–	–	32
Foreign exchange rate movements	(1)	(4)	–	–	(1)	(6)
At 31 December 2005	54	499	89	655	368	1,665
Additions	31	43	1	154	66	295
Acquisitions of subsidiaries	–	6	1	2	2	11
Disposals	–	(78)	(78)	(99)	(72)	(327)
Transfers to investment property	–	(6)	–	–	–	(6)
Transfers	(19)	19	–	–	–	–
Reversal of impairment losses (see note 32b)	–	(2)	–	–	–	(2)
Fair value gains (see note 32b)	–	26	–	–	–	26
Foreign exchange rate movements	(1)	(8)	–	(10)	(5)	(24)
At 31 December 2006	65	499	13	702	359	1,638
Depreciation
At 1 January 2005	–	–	(17)	(387)	(218)	(622)
Charge for the year	–	–	(4)	(77)	(31)	(112)
Disposals	–	–	–	26	12	38
Foreign exchange rate movements	–	–	–	1	–	1
At 31 December 2005	–	–	(21)	(437)	(237)	(695)
Charge for the year	–	–	(11)	(85)	(26)	(122)
Disposals	–	–	24	16	33	73
Foreign exchange rate movements	–	–	–	7	3	10
At 31 December 2006	–	–	(8)	(499)	(227)	(734)
Carrying amount
At 31 December 2005	54	499	68	218	131	970
Less: Assets reclassified as available for sale	–	–	–	–	(85)	(85)
	54	499	68	218	46	885
At 31 December 2006	65	499	5	203	132	904

Owner-occupied properties are stated at their revalued amounts as assessed by qualified external valuers or by local qualified staff of the Group in overseas operations, all with recent relevant experience. Values are calculated on the basis of existing use, being the estimated arm’s-length value at which the properties could be exchanged with vacant possession and without allowing for alternatives to their current use.

If owner-occupied properties were stated on a historical cost basis, the carrying amount would be £368 million (2005: £406 million).

The Group has no material finance leases for property and equipment.

20 – Investment property

	Freehold £m	Leasehold £m	Total £m
Carrying value
At 1 January 2005	9,100	1,957	11,057
Additions	1,596	173	1,769
Capitalised expenditure on existing properties	126	61	187
Fair value gains	1,169	402	1,571
Disposals	(1,171)	(80)	(1,251)
Foreign exchange rate movements	(55)	(3)	(58)
At 31 December 2005	10,765	2,510	13,275
Additions	1,373	342	1,715
Capitalised expenditure on existing properties	125	48	173
Acquisitions of subsidiaries	35	–	35
Fair value gains	1,227	280	1,507
Disposals	(1,494)	(47)	(1,541)
Transfers from property and equipment	6	–	6
Foreign exchange rate movements	(41)	(6)	(47)
At 31 December 2006	11,996	3,127	15,123

Investment properties are stated at their market values as assessed by qualified external valuers or by local qualified staff of the Group in overseas operations, all with recent relevant experience. Values are calculated using a discounted cash flow approach and are based on current rental income plus anticipated uplifts at the next rent review, assuming no future growth in rental income. This uplift and the discount rate are derived from rates implied by recent market transactions on similar properties.

The fair value of investment properties leased to third-parties under operating leases was as follows:

	2006 £m	2005 £m
Freeholds	10,423	9,036
Long leaseholds – over 50 years	3,039	3,018
	13,462	12,054