Valuing and Reporting the Estate's Worth for Inheritance Tax Purposes

In order to determine whether there is Inheritance Tax to be paid, it is necessary to obtain an estimate of the value of the estate, which includes the deceased's money, property, and possessions.

The estate will not be subject to tax if any of the following conditions are met:

• The entire estate is passed on to the spouse or civil partner of the deceased.
• The entire estate is passed on to a charity or a community amateur sports club.
• The estate has a value below the Inheritance Tax threshold of £325,000.

If the deceased was widowed or intends to give their home to their children, the tax threshold can be higher. More information can be found at the following link: [redirected link to the official government website on inheritance tax].

Determining the estimate

To estimate the total value of the estate, the following items need to be included:

At this stage, the estimate only needs to be accurate enough to determine if the estate owes any tax. Accurate valuations will be necessary if any tax is owed.

The estimate can be calculated independently or by using the Inheritance Tax checker.

Using the online Inheritance Tax checker

The Inheritance Tax checker will:

• Provide an approximate value of the estate.
• Assist in determining whether any Inheritance Tax is likely to be due or not.

The checker does not:

• Calculate the exact amount of Inheritance Tax owed.
• Report the final value of the estate to HMRC.

To begin the process, click on the following link: [redirected link to the official government website for checking inheritance tax].

Before you start

The following information is required to estimate the value of the estate:

• Details of the person's assets, including any joint assets.
• Details of any gifts the person made.

Valuing the assets

Start by listing the person's assets along with their monetary value.

This may include:

• The person's primary residence.
• Any additional properties, buildings, or land.
• Money held in banks, building societies, ISAs, or physical cash.
• Stocks and shares.
• Household and personal items, such as furniture, paintings, and jewelry.
• Cars, caravans, or boats.
• Foreign assets, such as property located abroad.
• Money owed to the person, such as wages or refunds from household bills.
• Payments received upon their death, such as life insurance or a lump sum pension death benefit.

Next, estimate the value of each asset as of the date of the person's death.

For items like jewelry, paintings, or other household goods, determine the value that would have been obtained if they were sold on the open market. Online marketplaces can be used to help determine their value.

Valuing joint assets

It is necessary to ascertain the assets owned jointly by the person and someone else, as well as how they were owned.

The rules for valuing joint assets, such as property, jewelry, or paintings, vary depending on whether they were owned as:

• 'Joint tenants' (referred to as 'joint owners' in Scotland)
• 'Tenants in common' (referred to as 'common owners' in Scotland)

Joint tenants

Joint tenants automatically transfer any assets, such as land or property, to the other owners upon the death of one of them.

If the asset, such as land or property, was owned as joint tenants with the person's spouse or civil partner, divide the value of the asset by 2.

If land or property was owned with other joint tenants, such as friends or siblings, do the following:

• Divide the value by the number of owners.
• Subtract 10% from the share of the person who died.

The deceased individual was a joint tenant with three other individuals, owning a property valued at £200,000 at the time of their death. This means that their share of the property is £50,000 (£200,000 divided by 4).

After deducting 10% (£5,000) from the deceased's share of £50,000, the final value comes to £45,000 (£50,000 - £5,000 = £45,000).

In Scotland, if land or property is jointly owned with others (excluding a spouse or civil partner), £4,000 is subtracted from the total value of the asset before determining the deceased's share.

The deceased owned a property in Scotland as a joint owner with three other people, and its value was £200,000 at the time of their death.

Subtracting £4,000 from the total value of the property leaves £196,000 (£200,000 - £4,000).

When divided among the owners, the deceased's share of the property amounts to £49,000 (£196,000 divided by 4).

To calculate the value of a joint bank account, divide the amount by the number of account holders, unless the account is jointly named for convenience purposes. For example, an older individual may add their child's name to assist them with the account. In such cases, use the amount that the deceased actually owned.

Tenants in common

The rules for tenants in common differ, as they do not automatically transfer any jointly owned assets.

If the deceased person owned property or land as a tenant in common, calculate the value based on their share.

Determining the value of gifts

It is necessary to assess the value of any gifts made by the deceased individual.

Gifts only contribute to the value of an estate if they were given within the seven years prior to the person's death and the total value exceeded the £3,000 annual exemption.

Any gift that the person continued to benefit from before their death will also be considered when calculating the estate's value. For instance, if they gave away a house but lived in it rent-free, this is known as a 'gift with reservation'.

Gifts to charities or political parties are exempt from Inheritance Tax.

Defining a gift

A gift may include:

• money
• household and personal belongings, such as furniture, jewelry, or antiques
• a house, land, or buildings
• stocks and shares listed on the London Stock Exchange
• unlisted shares held for less than 2 years before the person's death

Checking for gifts

You can identify gifts by:

• reviewing bank statements
• engaging in conversations with family members
• examining financial documents

Record the value of each gift and the date it was given.

Estimating the value of a gift

To determine the value of each gift, use either:

• the approximate value of the gift at the time it was given (realistic selling price)
• the realistic selling price of the gift if the deceased continued to benefit from it after giving it away (a 'gift with reservation')

Debts

When estimating the gross value, do not include the estate's debts. However, you must inform HM Revenue and Customs (HMRC) about any debts when reporting the estate's value.

Check for records of debts at the time of the person's death, such as:

• their mortgage, loans, credit cards, or overdrafts
• 'liabilities' like household bills or bills for goods or services they had received but not yet paid for (such as building work, decorators, accountants)

Next Steps

Verify whether it is necessary for you to submit comprehensive information regarding the worth of the estate.