An ‘estate’ is a person’s money, property and possessions.

When someone dies, valuing their estate is one of the first things to do as part of the probate process of sorting out their affairs. The process is different in Scotland and is known as ‘confirmation’.

You need to find out the value of the estate to see if Inheritance Tax is due.

Inheritance Tax is due at 40% on anything above the threshold of £325,000. If 10% of the estate is donated to charity this is reduced to 36%.

An estate is made up of anything that has a value (an ‘asset’), like:

• money in a bank or building society account
• property and land
• personal belongings - like jewellery
• furniture
• cars
• shares
• trusts
• pensions that include a ‘lump sum’ payment on death
• a payout from a life insurance policy

If the person gave away any assets before they died - called ‘gifts’ - you may have to include them in your valuation too, as well as any debts they had.

The basic steps to valuing an estate

1. Work out the total value of the assets and gifts. You should use a professional valuer for anything that's worth more than £500.

2. Deduct any debts that the person owed.

3. Record your valuation - include any paperwork you used to get valuations.

4. Decide if Inheritance Tax is due and find out which forms you need to complete (this depends on where the person lived and if tax is due).

If the person's affairs are complicated, a solicitor can help you value the estate and sort out the tax.

Inheritance Tax may be due on some gifts made by a person who dies, but only if the total value of the estate including these gifts is more than £325,000.

Gifts to include in the valuation

The valuation should include:

• assets (including cash) given away in the 7 years before the death
• assets given away at any time if the deceased person kept an interest in it (eg a house they gave away but lived in rent-free)
• gifts into trusts - though some Inheritance Tax may have been paid when they were made

Some gifts are tax-exempt and don't have to be included - the guide to Inheritance Tax has more information.

Working out the value of the gifts

Most of the time you use the value of the gift when it was made.

However, if the person had any assets worth more combined than split, and they gave part of them away as a gift, there will be a loss of value from their estate.

Inheritance Tax applies to this loss of value.

Example

Sue has 2 paintings valued at £100,000 together, but each is only worth £30,000 separately. She gives 1 to her daughter 2 years before she dies:

• this means her estate has suffered a loss of value - you include this in the total valuation for Inheritance Tax, not the value of the painting
• the figure is £70,000 - ie £100,000 minus the £30,000 for the painting
• £70,000 is added to your valuation

If the total value of gifts is more than the Inheritance Tax threshold

Tax is due on all gifts that bring the total above the threshold. Gifts always use up the threshold before any other assets the person leaves.

To work out which gifts you need to pay tax on, follow these steps:

1. List in date order (oldest first) all the gifts the person made in the last 7 years that aren't exempt.

2. Keep a running total of their values.

3. When the running total goes over the threshold, that gift - or the part of it taking the total over the threshold - and all gifts after it are subject to Inheritance Tax.

Taper relief

Inheritance Tax is due at 40% on anything over the threshold, but if the person died 3-7 years after making the gift, you can apply ‘Taper Relief’ to reduce the amount of Inheritance Tax payable.

It works like this:

Taper Relief reductions

Example

Joe made a gift of £350,000 on 15 January 2006. He died on 15 April 2009. The Inheritance Tax threshold for that year is £325,000.

Here’s how to work out the Inheritance Tax:

1. Take away the threshold from the value of the gift: £350,000 ? £325,000 = £25,000. So Inheritance Tax is due on £25,000.

2. Work out the Inheritance Tax at the full rate of 40%: £25,000 × 40% = £10,000.

3. The gift was made within 3 to 4 years of death. So Taper Relief at 20% is allowed: £10,000 × 20% = £2,000.

4. Take away the Taper Relief from the full tax charge: £10,000 ? £2,000 = £8,000.

In this example, Taper Relief reduces the amount of tax payable from £10,000 to £8,000.

If the person who died owned assets or property jointly with other people, you need to work out their share and add this to your valuation.

Ways of owning property and assets

There are different ways they could have owned property or assets:

• as sole tenant - they owned them 100%
• as joint tenants - they owned an equal share with 1 or more people and their share passes automatically to the other joint owners
• as tenants in common - they owned them with 1 or more people but the shares don’t have to be equal, and each tenant can give away their share however they want

In Scotland, joint tenants are called 'joint owners' and tenants in common are called 'common owners'. The assets are usually passed on in a will.

Valuing shares in a jointly-owned house or land

The value depends on:

• the size of the deceased’s share
• who the other owner is

To work out the value of the share you need to know the market value of the whole property. Ask a professional valuer to help you, like a chartered surveyor.

If the joint owner’s the person’s spouse or civil partner

Use the value of the deceased person’s share in your valuation.

If the joint owner isn’t the spouse or civil partner

Reduce the value of the deceased person’s share by 10% to reflect:

• the difficulty in selling a jointly owned share of a property
• the fact that the value of a joint owner’s share might be reduced because the other owner has the right to keep living in the property

Example
Jean and Muriel are sisters and live in a house worth £500,000 when Jean dies.

• £500,000 ÷ 2 = £250,000, so each share is worth £250,000
• £250,000 – 10% = £225,000

So Jean’s share is valued at £225,000.

In Scotland the rules are different because a joint owner can force a sale and divide joint assets or property after another joint owner dies.

If you’re in Scotland, deduct £4,000 from the value of the property before you work out the value of the deceased's share. This is an estimate to account for the costs of a possible forced sale.

These reductions are only starting points and may have to be changed later - HM Revenue & Customs (HMRC) will contact you if they want to discuss a valuation.

Valuing other joint assets

Bank or building society accounts

If the person who died provided all the money in the account and just had it in joint names for convenience, include all the money in the account in your valuation.

If another person provided some of the money, you only include the amount the deceased person provided.

Insurance policies

You only include the deceased person’s share, which is half the value of the policy. The insurance company will estimate the policy’s value for you.

Other assets

If the person owned any other assets jointly, you’ll need to:

• work out what proportion they owned
• include the value of their share in your valuation of the estate

If you need help

You can call the Probate and Inheritance Tax Helpline for advice:

Probate and Inheritance Tax Helpline
Telephone: 0300 123 1072
Find out about call charges

The types of land and buildings you need to include when valuing someone’s estate include:

• their home
• any other houses or flats they owned
• farms and farmland
• business properties like shops, hotels or factories
• other land and buildings (eg woodland, derelict land, lock-up garages)
• any rights attached to land like shooting or fishing rights

Getting a valuation

A professional valuer, like a property valuer or chartered surveyor, will make sure the valuation is as accurate as possible. They’ll charge a fee but you can claim this back from the estate later.

The valuation must be realistic and reflect the open market value.

If you under-value a property

If you think the original valuation may have been too low, ask the valuer to reconsider it. If the value changes, write to HM Revenue & Customs (HMRC) to tell them the new value:

HMRC Trusts & Estates
Inheritance Tax
Ferrers House
Castle Meadow Road
Nottingham NG2 1BB

If you over-value a property

If you sell any land or buildings within 4 years of the death for less than the value you paid Inheritance Tax on, you can claim for the loss using form IHT38 on the HMRC website.

If the deceased lived rent-free in a property left to someone else

Someone might leave their house to their daughter, but arrange in their will for their wife to live there rent-free. When the wife dies, the house passes to the daughter.

This is called an ‘interest in possession’ trust for Inheritance Tax and in this example you’d need to include a valuation of the property when you value the estate of the wife.

Tax reliefs for business properties

You may be able to get Inheritance Tax relief for properties that are used in business. Depending on the type of property and what it’s used for, it might qualify for:

• Business Relief
• Agricultural Relief
• Woodland Relief

You can find out more about Business, Agricultural and Woodland Relief on the HMRC website.

A trust is a way of looking after assets for someone, involving:

• the ‘settlor’ (‘truster’ in Scotland) - the person who puts assets into a trust
• the ‘trustee’ - the person who looks after the trust
• the ‘beneficiary’ - the person who the trust is for

When someone dies, there are 3 ways you might have to deal with a trust as part of valuing their estate.

If the deceased was the beneficiary of a trust

Trusts can be set up so the beneficiary owns the income of a trust, the assets or both. This affects what’s included in the beneficiary’s estate when they die. There are 2 main types of trust you might have to deal with.

Bare trusts

This is where the beneficiary is entitled to the income and the assets in the trust. When they die, both are counted as part of their estate.

Interest in possession trusts

This is where the beneficiary is entitled only to the income from the trust. However, when valuing someone’s estate for Inheritance Tax purposes, the value of the capital assets in the trust are added to the value of the person’s estate.

Not all income from interest in possession trusts is counted as part of the estate for Inheritance Tax. The trustees will help you work out the value of a trust's income.

If the deceased transferred assets into a trust before they died

You’ll need to find out whether the person made any transfers in the 7 years before they died. If they did, and they paid 20% Inheritance Tax, you’ll need to pay an extra 20% from the estate.

Even if no Inheritance Tax was due on the transfer, you still have to add its value to the person's estate when you're valuing it for Inheritance Tax purposes.

If the trust is set up by a will

Someone might ask that some or all of their assets are put into a trust. This is called a ‘will trust’.

The personal representative of the deceased person has to make sure that the trust is properly set up with all taxes paid, and the trustees make sure that Inheritance Tax is paid on any future transfers.

Dealing with trusts for Inheritance Tax can be complicated. The HM Revenue & Customs (HMRC) Probate and Inheritance Tax Helpline can help you to:

• understand your Inheritance Tax responsibilities
• understand what to do with estates and trusts
• complete the Inheritance Tax forms

Probate and Inheritance Tax Helpline
Telephone: 0300 123 1072
Find out about call charges

If the person who’s died owned stocks and shares, you need to value them as well.

Valuing ‘listed’ stocks and shares

These are stocks and shares that are listed on a stock exchange, like the London Stock Exchange. You can find their value by:

• looking it up yourself - use the closing price on the day the person died (you can find this in the financial pages of the following day’s newspapers - libraries have copies of old newspapers)
• using a professional valuer - if the person owned a lot of shares, you can ask a stockbroker to do it for you

Work out the total value by multiplying the number of shares by the price per share.

If the shares changed price over the day

If you’re given a range of prices, follow the steps in the example below:

Example

The range is 1091p to 1101p and you have to find the total price for 1,000 shares.

1. Find the difference between the higher price and the lower price: 1101p - 1091p = 10p.

2. Work out a quarter of the difference between the 2 prices: 10p x 0.25 = 2.5p.

3. Add this to the lower price: 1091p + 2.5p = 1093.5p. This new price is called the 'quarter up price' and this is the one you use.

So the quarter up price is 1093.5p and the value of the 1,000 shares is £10,935 (1,000 x 1093.5p).

If there are dividends (bonuses)

Stocks and shares usually pay a bonus called a dividend to their shareholders once or twice a year.

Sometimes instead there’s an increase in the value of the shares or the shareholder is entitled to more shares.

If a bonus was due when the person died, the shares will have a marking next to the price, like ‘xd’, ‘xc’, ‘xr’, or ‘xe’. Next to this will be a price or percentage to include in your valuation.

You work out the bonus to include in the value of the estate by multiplying the number of shares by the bonus figure per share.

Interest payments

Some stocks and shares calculate interest on a daily basis but only pay it once or twice a year. These will have ‘im’ or ‘ik’ next to the price.

You need to work out the value from the date the last payment was made until the date of death. This can be complicated - ask a professional valuer to help.

Unit trusts

Newspapers don’t show the value of these so you need to ask the fund manager. If you’re given 2 prices, use the lower one.

Government stocks and bonds

If the deceased person held these, contact Computershare at the UK Debt Management Office to get a valuation:

Computershare Investor Services PLC
PO Box 2411
The Pavilions
Bridgwater Road
Bristol
BS99 6WX

Shares in ISAs

If the person had shares in an ISA (Individual Savings account), ask the fund manager for a valuation. Contact details should be on the deceased person’s paperwork. Use the closing price on the day the person died.

The same applies to PEPs (Personal Equity Plans) and TESSAs (Tax Exempt Special Savings Accounts).

If the stock exchange was closed when the person died

You can use the closing price on either:

• the last day the stock exchange was open before the person died
• the first day the stock exchange was open after they died

So if the person died on Sunday, and the closing price was lower on Monday than on the previous Friday, you can use Monday’s price.

Unlisted stocks and shares

Unlisted shares are shares in a private company that are not listed on a stock exchange. Find out the market value of these shares by contacting the company secretary or accountant.

If you make a mistake

If you under-value stocks and shares, contact the Probate and Inheritance Tax Helpline:

Probate and Inheritance Tax Helpline
Telephone: 0300 123 1072
Find out about call charges

If you sell shares within a year of the date of death for less than the value you paid Inheritance Tax on, you can claim relief for the loss using form IHT35 on the HM Revenue & Customs (HMRC) website.

When you value someone’s estate you deduct their debts from the total value.

This includes anything they owed when they died as well as ‘liabilities’, which are things they’re responsible for paying, like:

• household bills
• bills for goods and services they had received but not yet paid for (eg building work, decorators, solicitors, accountants)

You’ll need to look through their paperwork for things like bills and statements. You might also need to contact energy suppliers or the local council to find out if they owed money.

Mortgages and joint property

If the person had a mortgage or secured loan on a property, deduct this from the property’s value. If it’s more than the property is worth, deduct the excess amount from the rest of the estate.

If the person had a joint mortgage with someone else, just deduct their share of the mortgage.

If there's any payout from a mortgage protection policy, you need to add this to the value of the estate.

Loans and credit card debts

You need to deduct the following from the estate:

• loans
• outstanding credit card balances
• overdrafts

If there's a payout from a payment protection plan, you need to add this to the value of the estate.

Uncashed cheques

If the person wrote cheques that haven’t been cashed yet you can deduct these from the value of the estate if they are for things the person bought before they died.

If they’d written the cheque as a gift, you can’t deduct the amount of the cheque, but you don’t add it to the estate either - you just ignore it.

Debts owed to close friends or family

You can only deduct these if they’re legally enforceable. This is when either:

• the deceased person and the lender made a written or verbal agreement about repaying the loan
• there’s evidence that the person was making repayments

Gambling debts

Deductions for gambling debts are allowed in England, Wales and Scotland if they can be legally enforced eg debts that arose from betting and gambling at licensed casinos and betting shops.

Debts relating to illegal gambling aren’t allowed. In Northern Ireland, gaming and wagering contracts aren’t legally enforceable and aren’t allowable for deductions.

Guarantee debts

These are promises to pay someone else’s debt if they can’t pay it themselves. If the loan hadn’t been repaid when the person died, you may be able to make a deduction from the estate. This depends on the borrower’s circumstances - if they:

• have no financial resources, you can deduct the whole amount of the loan
• can repay part of the loan, you can deduct the amount they can’t repay
• can repay the whole loan, you can’t deduct anything

Funeral expenses

You can deduct these from the value of the estate, as well as expenses to cover things like:

• flowers
• refreshments for mourners
• expenses paid by the executor or administrator when arranging the funeral
• a headstone to mark the grave

Here’s an example of how to value an estate for Inheritance Tax purposes.

Robert died on 10 April 2011, leaving £1,000 to charity (exempt from Inheritance Tax) and the rest of his estate to his daughter.

The value of his assets are:

• house = £300,000
• car = £7,500
• household goods = £2,000
• bank account = £19,000
• shares = £30,000
• Premium Bonds = £500

Total value = £359,000

The value of his debts are:

• telephone bill = £55
• electricity bill = £45
• gas bill = £35
• funeral expenses = £865

Total debts to deduct = £1,000

The net value of Robert’s estate minus the charity donation of £1,000 is £357,000.

You can now work out the amount of Inheritance Tax to pay:

1. The Inheritance Tax threshold is £325,000, so you take this away from the value of the estate.

2. This leaves £32,000 that's taxable at 40%.

3. £32,000 x 40% = £12,800.

4. The amount of Inheritance Tax payable is £12,800.

There are instructions on how to pay Inheritance Tax on the HM Revenue & Customs (HMRC) website.

Interest is charged on any tax not paid within 6 months of the person's death - the interest rates are on the HMRC website.