Valuing an estate for Inheritance Tax

Valuing an estate for Inheritance Tax

Contents

When valuing a deceased person's estate, you need to include all worldwide assets (property, possessions and money) they owned at their death, whether jointly held or in their sole name. You also need to consider certain assets they gave away during their lifetime, particularly within the seven year period before they died and those in which the deceased may have retained a benefit. The valuation must accurately reflect what those assets would reasonably fetch on the open market at the date of death.

See our 'Paying Inheritance Tax' section for more information.

When do you carry out the valuation?

Valuing the deceased person's estate is one of the first things you need to do as the personal representative. You won't normally be able to take over management of their estate (called applying for 'probate') until all or some of any Inheritance Tax that is due has been paid.

See our 'Authority to manage the estate' section for more information.

Bear in mind that Inheritance Tax is only payable on values above the nil rate band, which is currently £325,000.

Key steps in valuing someone's estate

Step one

Take the value of all of the assets that they own, together with the value of:

  • Their share of any assets that they own jointly with someone else, for example, a house that they own with their partner
  • Any assets which are held in a trust, from which they had the right to benefit
  • Any assets which they had given away, but in which they kept a benefit, for instance, if someone gives a house to their children but still lives in it rent-free
  • Certain assets which they gave away within the last seven years (for details on which assets you can ignore, see our 'Inheritance Tax' section)
  • Foreign assets

Step two

From the total above, deduct everything that the deceased person owed, for example:

  • Any outstanding mortgages or other loans
  • Unpaid bills
  • Funeral expenses

Step three

The value of all of the assets, less the deductible debts, is their estate. The threshold above which the value of estates is taxed at 40% is currently £325,000. If the debts exceed the value of the assets owned by the person who has died, the difference cannot be set against the value of trust property included in the estate.

Can you use estimates if you don't know the exact value?

If you don't know the exact amount or value of any item, such as an income tax refund or household bill, you can use an estimated figure. But rather than guessing at a value, try to work out an estimate based on the information available to you.

You'll find instructions about how to show estimates on the form you complete (see below).

Forms to complete

The forms on which you'll need to record the valuation will differ, depending mainly on the expected valuation amount. You complete a form IHT205 for estates where you don't expect to have to pay Inheritance Tax (called 'excepted estates') and a form IHT400 in certain circumstances, but particularly when you do expect to have to pay Inheritance Tax.

Getting help with the valuation

You should be able to value some of the estate assets quite easily, for example, money in bank accounts or stocks and shares. In other instances, you may need the help of a professional valuer (or chartered surveyor for valuing a property). If you do decide to employ a valuer, make sure you ask them to give you the 'open market value' of the asset. This represents the realistic selling price of an asset, not an insurance value or replacement value.

If the affairs of the estate are complicated, you may want to work with a solicitor to help you value the estate and pay the tax. If you're not using a solicitor, you can ask HMRC to use form IHT400 to work out any Inheritance Tax due.

For more information see our 'Inheritance Tax' section.