Valuing the Estate for Inheritance Tax

Getting the estate valuation right for Inheritance Tax, or IHT, is absolutely vital. HMRC needs precise figures, and getting it wrong can cause serious delays and potential penalties. This guide walks you through the process, keeping it clear and aligned with official GOV.UK guidance. Let's tackle this properly.

The Basics: What HMRC Needs

For IHT, you must report the 'open market value' of all the deceased's assets on the date they died. You also need to list their outstanding debts and liabilities.

• Date of Death Value: This is non negotiable. Everything must be valued as it stood on that specific day.
• Open Market Value: This means the realistic price an asset would fetch if sold on the open market at that time. It's not the insurance value or what someone wishes it was worth; it's the likely sale price.
• Gross Estate: The total value of all assets before deducting debts.
• Net Estate: The value after subtracting allowable debts and liabilities. This is the figure used to calculate any IHT due.

The Official Source: For the definitive rules, always refer to GOV.UK's guidance on valuing an estate for Inheritance Tax. Our guide helps you apply those rules practically.

Valuing the Assets: A Summary

We have detailed guides on valuing specific assets, but here's a quick reminder for the IHT context:

• Property: Use estate agent appraisals or, ideally for IHT, a formal RICS valuation reflecting the date of death market value.
• Bank Accounts & Savings: Get exact balances, including accrued interest, confirmed in writing by each institution for the date of death.
• Shares & Investments: Use the 'quarter up' or mid price valuation from the date of death. Get this from brokers or reliable financial data sources.
• Personal Possessions (Chattels): Estimate realistically for general items. Get professional valuations from auction houses or specialists for valuable items like antiques, art, jewellery, or collections, especially if IHT is likely.

Accuracy is Key: HMRC can challenge valuations they believe are incorrect. Always aim for realistic, evidence based figures.

Accounting for Debts and Liabilities

You can deduct certain debts owed by the deceased at their death from the estate's value for IHT purposes. These typically include:

• Outstanding mortgages and secured loans.
• Credit card balances and personal loans.
• Unpaid utility bills and council tax (up to the date of death).
• Reasonable funeral expenses.

Important: You need proof for every debt, showing the exact amount owed on the date of death. Keep all statements and invoices. Not all debts are deductible; check GOV.UK guidance if unsure.

Bringing It All Together: The Valuation Summary

Once you have valued all assets and identified allowable debts, you need to summarise them to calculate the net estate value. This is essential for completing the IHT forms (like the IHT400).

Here's a simplified example:

Example Estate Valuation Summary

Assets	Value at Date of Death (£)
House (Main Residence)	450,000
Bank Account (Current)	5,200
Savings Account (ISA)	25,000
Shares (Listed UK Companies)	42,000
Car	8,000
Jewellery (Professional Valuation)	15,000
Household Contents (Estimate)	3,500
Total Assets (Gross Estate Value)	548,700
Liabilities	Amount Owed (£)
Mortgage on House	110,000
Credit Card Balance	2,100
Outstanding Electricity Bill	150
Funeral Expenses (Invoice Received)	4,500
Total Liabilities	116,750
Net Estate Value for IHT Calculation	431,950
(Total Assets minus Total Liabilities)	(£548,700 - £116,750)

Why Getting it Right Matters

• Correct IHT Calculation: Ensures the right amount of tax is paid, avoiding overpayments or underpayments.
• Smooth Probate Process: Accurate figures minimise queries from HMRC, speeding things up.
• Executor Protection: Demonstrates you've diligently followed the rules, protecting you from potential issues later.

Keep Records: Maintain meticulous files containing all valuation reports, bank statements, bills, invoices, and correspondence related to the estate's value. You may need to provide these to HMRC.

Wrapping Up

Valuing an estate for IHT requires care and precision. By systematically valuing each asset and liability using the open market value at the date of death, and keeping solid records, you can confidently navigate this crucial step.

You've got this. Compiling these figures brings you much closer to completing the necessary IHT forms. We're here to guide you through that stage too.