Valuing assets in the deceased’s estate is one of the most important jobs the executor or administrator has. It is the basis upon which an estate is assessed for IHT purposes.
What assets should be included in any valuation? Everything, including property, land, cash in banks and building societies, shares, valuables for example jewellery, collections of art, coins & stamps and cars etc.
All valuations are assessed on the date of passing. It’s worth noting that HMRC may challenge any valuations they disagree with so it’s important to provide a reference as to how they were arrived at.
Valuing assets in the deceased’s estate should be straightforward when it comes to cash and shares. All that is needed is a balance/statement for any accounts and the closing price for the shares on the date of passing. Where there is a property or land, local estate agents should be used to give a realistic estimate of value and usually 3 valuations are required.
In other areas things may be seem a little less straightforward. For example, when it comes to possessions such as furniture and household items, goods and chattels, how should these be valued?
Any item over £500 in value needs to be included separately on the inheritance tax form. Items below this amount are usually lumped together and a total given. it is important to give a realistic valuation as HMRC sometimes will do spot checks and since 2010 they have had the ability to cross reverence a number of sources such as bank accounts, company ownership, property transactions, PayPal, Amazon etc to give them a better understanding of the deceased’s situation.
What about joint assets? Where an asset is owned jointly this automatically becomes the property of the surviving owner. Where this is the spouse/civil partner, there is no inheritance tax liability to be considered. However, if the joint owner is not the spouse, then you may have to pay IHT if the value of the whole of the deceased’s estate exceeds all available inheritance allowances.
Valuing joint assets is straightforward. You simply take the value of the assets and divide it by the number of owners making sure to include the deceased.
There are rules associated with gifts made during the deceased’s lifetime. A gift can be made up to £3000 per annum without incurring any IHT liability. This is known as a potential exempt transfer. If any gifts are given in excess of the is amount within the 7-year period before the date of passing they should be accounted for as follows. The £3000 annual allowance should initially be deducted, and the value of the gift then calculated using the tapering relief scale.
Where a gift has been made but the donor still enjoys the benefit of it. For example, where a property has been put into the names of children, but the donor still lives in it, this is known as a gift with reservation. In this case the 7-year rule no longer applies and the value of the whole of the gift should be included in the return to the Revenue. It should be noted the amount to be added back is the value at the date of passing.
It is important when valuing assets in the deceased’s estate to recognise that any debts outstanding at the date of passing such as credit cards, mortgages, equity release schemes and loans, are deducted from the value of the estate for IHT purposes. The cost of the funeral can also be taken into account.
In conclusion the value of the deceased’s estate is the value of all assets and gifts minus all debts and liabilities.
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