Valuing the Estate
VALUING THE ESTATE
CAR (IHT205)
You can use many online resources to value for example
If there is any outstanding finance this should be recorded as debt (see ‘Debts’). Do not put the net value after finance deduction as the value of the car.
HMRC GUIDES
The rules for valuation of assets are explained in the notes HMRC produce for IHT205 or IHT400.
We cover the most common asset examples in brief when completing IHT205, and a little more guidance for IHT400. You should read the full HMRC guidance for any category you require. If you are completing IHT400 you must refer to the guide for every category.
If the size of the estate requires you to use IHT400 you may prefer to get a professional to assist you with completion. Contact your local ICAEW Probate Firm for advice.
USE OF ESTIMATES
HMRC will allow the use of estimated figures with back up information to confirm how the estimate is reached if you are completing IHT205 only. You should not use any estimates except in exceptional circumstances if you are completing IHT400. These must be disclosed on the form. You are likely paying Inheritance Tax based on these figures – if you underestimate you could get a fine or penalty – if you overestimate you could pay too much tax.
HOUSES – VALUATION (IHT205)
You can use Zoopla to give a good indication of value of a house. You can ask an estate agent for a free valuation. Make sure you print and keep details of how you have valued the house in the Master Physical File.
HOUSES – TENANTS IN COMMON VS JOINT TENANTS
To ascertain if a property if held as joint tenants or tenants in common you can do a land registry search for £3.
You need a ‘Title Register’.
JOINT TENANTS
If the property is owned as joint tenants the property passes to the survivor. This asset would appear in the top section of the Master Financial Summary.
TENANTS IN COMMON
The deceased’s share of the property forms part of the estate. The value should go in the lower half of the Master Financial Summary.
There are complex rules surrounding property held as tenants in common, particularly if the surviving spouse is the co-tenant in common and appointed executor to the estate.
Contact us for advice.
SHARES (IHT205)
Value may be found online by searching for the full share name.
BANK ACCOUNTS
You may have an up to date statement, if not you will have written to ask for one. You should use value including any interest accrued to date of death. Closing statement would be most accurate.
LAND AND BUILDINGS (INC HOUSES) (IHT405)
A chartered surveyor should value. You should advise and instruct the basis as open market value at date of death.
SHARES (IHT400)
Quoted value at date of death, but specific rules apply. Contact your local ICAEW Probate Firm for advice.
VALUING THE ESTATE – DEBTS/ LIABILITIES
Liabilities (debts) are taken into account when valuing the estate.
This does not include costs incurred by the Personal Representatives.
Liabilities should be recorded in the correct place on the Master Financial Summary, broadly speaking joint liabilities at the top, sole liabilities nearer the bottom.
The Master Financial Summary identifies where the most common liabilities would go.
Great care must be taken in this area.
If you are uncertain if any debt should be included or subsequently paid, contact us for advice.
For example: debts to family members.
If the debts are straightforward and value is easy to ascertain you can deal with this yourself.
For example: bills, credit card debts, goods & services supplied but not paid for.
Try to list liabilities with the asset they attach to, eg a mortgage on a jointly owned property would go at the top, for a solely owned property this would go at the bottom.
Business debts should be deducted firstly against business property. Get advice if this applies.
INCOME TAX – TO DATE OF DEATH
HMRC should advise if any tax is due to date of death if the deceased was under a PAYE scheme and did not complete self-assessment tax returns.
If the deceased did complete self-assessment tax returns one will need to be completed up to date of death. Contact us for advice.
FUNERAL EXPENSES
A deduction may also be made from the estate for reasonable funeral expenses.
Some banks and building societies offer to settle funeral costs directly with the funeral director from funds held in the deceased’s sole named bank account.
Contact the deceased’s current account provider to see if this option is available. The funeral is a significant cost which would usually have to be paid for prior to getting probate or any estate funds.
BUSINESS INTERESTS (IHT413)
The starting point is an executor does not have the power to run a business unless it is with a view to selling it. It may be that the deceased has appointed a special executor to run the business on his death. The will may well indicate who should continue to run the business, there may be partners or directors or family who take it on. The risk for executors is that they are personally liable if the business were to make losses. It is normal for a will to include the power for an executor to run the business but be indemnified by the estate for any losses.
With partnerships and limited companies the partnership or shareholders agreement will often detail what is to happen on death of a partner or shareholder in terms of capital or shares, this may include pre-emption rights regarding shares. In these cases the personal representative will normally have no power to intervene in the management of the business but as personal representative you are interested in establishing beneficial entitlements and where necessary arranging for the sale of that interest. It is important that you obtain copies of any partnership or shareholders agreement.
We can help in this area.
A professional valuer should ascertain open market value at date of death. Contact us for advice as reliefs are available that may reduce the asset value.
PENSION SAVINGS (IHT409)
Pensions are a very complex area and you should seek advice based on the particular circumstances of the pension you are dealing with. Do not risk paying Inheritance Tax if this is not due on this asset.
LIFE ASSURANCE (IHT410)
As with pensions, you can take advice on this area from an expect without increasing your costs dramatically. Contact your local ICAEW Probate Firmfor advice.
HOUSEHOLD & PERSONAL GOODS (INC CARS) (IHT408)
No professional value required where item’s value is less than £500. HMRC strongly advise professional valuations for items valued at over £500.
VALUING THE ESTATE – POTENTIALLY EXEMPT TRANSFERS
It is necessary to consider any gifts the deceased may have made in the seven years prior to date of death.
There are exemptions and a sliding scale for any inheritance tax due depending on how long ago a gift was made.
The purpose is to avoid someone who is dying gifting a significant asset or sum of money immediately prior to their death to avoid paying Inheritance Tax on it.
Exemptions:
-
Estate passes to spouse
-
Gifts between husband and wife
-
Gifts over seven years ago
-
Wedding gifts up to £2,500
-
The first £3,000 given each year
-
Gifts up to £250 to multiple people (cannot use this and the £3,000 exemption)