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Valuing someone's estate for Inheritance Tax
When valuing a deceased person's estate you need to include assets (property, possessions and money) they owned at their death and certain assets they gave away during the seven years before they died. The valuation must accurately reflect what those assets would reasonably fetch in the open market at the date of death.
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' or sometimes 'applying for a grant of representation/ confirmation') until all or some of any Inheritance Tax that is due has been paid.
But bear in mind that Inheritance Tax is only payable on values above £300,000 for the 2007-2008 tax year.
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 an interest: 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, read the article ' Inheritance Tax exemptions')
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
(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.)
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 per cent is £300,000 from April 2007. For the tax year 2008-2009 it rises to £312,000, in 2009-2010 to £325,000, and in 2010-2011 to £350,000.
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.
Forms to complete
The forms on which you'll need to record the valuation will differ, depending 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 IHT200 where you do expect to have to pay. The forms vary for excepted estates in Scotland.
To find out more about calculating and paying Inheritance Tax and to link to all the relevant forms, read our related article on paying 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 IHT200 to work out any Inheritance Tax due (read more in our related article 'Paying Inheritance Tax').
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