How do I value an Estate for Inheritance Tax?

When Estate planning – as with all aspects of financial planning – it’s important to understand the value of the wealth involved. This will ensure you are better informed, and able to make sensible decisions about passing on your wealth. It can also help ensure that Inheritance Tax (IHT) doesn’t erode the value of what you’ve worked hard to build. If it’s been some time since you had any property valued, or reviewed your investment performance, it can be an extremely useful exercise to take stock.

Calculating the value of your Estate

The value of an Estate is worked out by totalling up all assets, and deducting any debts which might be owed. It can be very helpful to write a list or create a spreadsheet noting all the relevant details. This can also be a useful tool for your Executor or beneficiaries as and when the time comes.

Identify the assets and debts

Firstly make a note of any assets you own. This might include property (both in the UK and overseas), land, investments such as stocks and shares, pensions, cash deposits, and items of value such as cars, art or jewellery. Debts may include any outstanding mortgages, credit cards, loans or overdrafts.

Estimate the value of the property

Property prices have demonstrated strong performance in recent years, and for many people, buying bricks and mortar is perceived as a very worthwhile investment. UK property prices have risen by 53% in the last ten years so it can be very useful to seek an up-to-date valuation if you’ve owned the property for some time. Use a reputable agent or surveyor, and always ensure that you get more than one opinion to give you the most realistic picture of the current value of any property.

Find the value of your Estate

Once the groundwork has been done it’s a pretty easy calculation to determine the value of your Estate. Simply deduct any liabilities from your assets. So if you have assets totalling £1million and liabilities of £50,000, your Estate will be valued at £950,000. However, please do bear in mind that some assets are not within the charge to IHT, for example your UK pension fund.

How do I report an Estate value to HMRC?

Reporting an Estate value to HMRC only applies once you have passed away. Before reporting, it will be important for your Executors to check what’s needed. There are different processes and information required, depending on a number of factors, including whether IHT is due or not. At this time it can be very helpful to work with an expert who can help guide on the steps which need to be taken.

Identifying tax on collectibles

Although this only applies to some Estates, it’s worth bearing in mind that any notable art or collectibles can be handed to the Arts Council and HMRC to cover some (or possibly all) of an IHT bill. In this situation HMRC’s Acceptance in Lieu scheme enables the transfer of heritage assets to an approved museum or art institution to settle any IHT or Estate duty that’s owed or which might be due in the future. Any works of art, objects, or collections must be considered of “pre-eminent importance” based on their national, scientific, historic or artistic interest and in acceptable condition.

Is IHT based on gross or net Estate?

The value of your net Estate is the important figure used for calculating IHT. This is the value of assets less any debts at the date of death. Helpfully funeral costs can also be deducted.

Do probate records show the value of an Estate?

The Grant of Probate shows both the gross and net UK Estate. This document is often needed by banks or other financial organisations to allow Executors to gain access and settle any financial affairs.

Grant of Probate?

Most of us, when we die, will leave an Estate – anything from some cash savings in the bank to a collection of properties, investments, and savings. In its simplest form, probate refers to the process which identifies and values these assets, pays any remaining debts, and shares what’s left in line with the Will.

The Executor of your Estate, who you’ll have nominated in your Will, will apply for a Grant of Probate. Probate is usually needed for any Estate worth more than £5,000 and is a legal document enabling your Executor to gain access to your funds and deal with your finances so that they can follow your wishes for sharing out your Estate.

IHT and Estate planning advice from The Fry Group

The Fry Group’s highly knowledgeable and respected team are used to working closely with families and HMRC to help ensure a smooth process with all aspects of Estate planning. A robust Estate plan can help reduce or even avoid IHT, ensuring a much easier process at what can be a very challenging time for your family.

Would you like to find out more?

Download our guide to Inheritance Tax

Inheritance Tax guide