Valuing an estate

Accurately reflecting what those assets would receive in the open market

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 7 years before they died. The valuation must accurately reflect what those assets would reasonably receive in the open market at the date of death.

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 £325,000 for the 2009/10 tax year.

The valuation process
This initially involves taking 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 7 years

Next from the total value 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.)

You will be left with the value of all of the assets, less the deductible debts, to give you the estate 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.

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 IHT400 where you do expect to have to pay. The forms vary for excepted estates in Scotland.

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 any tax due. If you’re not using a solicitor you can ask HMRC to use form IHT400 to work out any Inheritance Tax due.

Forms you need to complete
There are different forms to complete, depending on the value of the estate. Once you’ve completed the relevant tax forms, you also need to complete the relevant probate form.