How Do I Value an Estate for Inheritance Tax?

Valuing an estate for Inheritance Tax requires listing all assets, debts, and gifts accurately. Learn the steps, key allowances, and how to report to HMRC.

Introduction

When someone dies, one of the first and most important steps in administering their estate is to work out its value. This valuation determines whether Inheritance Tax (IHT) is due and how much must be paid. It also affects probate applications and distributions to beneficiaries.

Valuing an estate for Inheritance Tax involves listing all assets, debts, and gifts made by the deceased and calculating their total worth. This article explains how to do it accurately, what to include, and when to seek professional help.

Why an Accurate Valuation Matters

HMRC requires a clear and accurate valuation of the estate to calculate Inheritance Tax correctly. If the value is underestimated, beneficiaries could face additional tax, penalties, or interest later. If it is overestimated, you may pay too much tax unnecessarily.

Executors or personal representatives are legally responsible for ensuring the valuation is correct, even if they appoint professionals to assist.

Step 1: Identify All the Deceased’s Assets

Start by gathering information about everything the deceased owned or had an interest in at the date of death. This includes both personal and jointly owned assets.

Assets typically include:

  • Property or land in the UK and abroad

  • Bank and building society accounts

  • Cash savings and premium bonds

  • Investments, such as shares, ISAs, or trusts

  • Business interests or partnerships

  • Vehicles, jewellery, art, and valuable collections

  • Pensions and life insurance (if payable to the estate)

  • Personal belongings and household contents

Jointly owned assets are usually valued at the deceased’s share of ownership. For example, if a house is owned jointly by spouses, only 50% is included in the estate for valuation purposes.

Step 2: Value Each Asset

Each asset must be valued at its open market value — the price it might reasonably sell for on the date of death.

How you value assets will depend on their type:

  • Property: Obtain a professional valuation from an estate agent or chartered surveyor. HMRC expects this to be realistic and supported by evidence.

  • Bank accounts and savings: Use the closing balances on the date of death.

  • Investments: Contact the investment provider for the value on the date of death.

  • Personal belongings: Estimate resale values rather than insurance values. For valuable items, it may be wise to get an independent appraisal.

  • Business assets: Obtain an accountant’s or valuer’s report.

You should keep written evidence for all valuations in case HMRC requests proof.

Step 3: Include Gifts Made Before Death

Gifts made by the deceased within seven years of death may be subject to Inheritance Tax. These are called potentially exempt transfers (PETs).

You must include:

  • Cash or assets given away in the last seven years.

  • Gifts where the deceased continued to benefit from the asset (for example, giving away a house but still living in it rent free).

  • Trusts or other financial gifts that fall under IHT rules.

Some small or regular gifts are exempt, such as:

  • Up to £3,000 per year (the annual exemption).

  • Gifts of £250 or less to individuals.

  • Wedding gifts within set limits.

You will need records showing the value and date of each gift to determine whether IHT applies.

Step 4: Deduct Debts and Liabilities

After valuing all assets and gifts, you can deduct any outstanding debts or liabilities the deceased owed at the date of death.

Common examples include:

  • Mortgages and loans

  • Credit card balances

  • Unpaid utility bills or taxes

  • Funeral expenses (reasonable costs only)

Once these are subtracted, the result is the net value of the estate.

Step 5: Apply the Inheritance Tax Allowances

The total estate value determines whether Inheritance Tax is payable.

Each person has a nil-rate band of £325,000. This means the first £325,000 of the estate is tax free.

If the deceased owned a home and left it to direct descendants (such as children or grandchildren), an additional residence nil-rate band of up to £175,000 may also apply.

If the deceased was married or in a civil partnership, any unused allowances from their partner can be transferred, potentially increasing the tax-free threshold to £1 million for couples.

Any value above these allowances is usually taxed at 40%, although charitable donations can reduce the rate to 36% if at least 10% of the estate is left to charity.

Step 6: Report the Valuation to HMRC

Once you have valued the estate and calculated the tax, you must report it to HMRC using the appropriate forms:

  • Form IHT205 if no tax is due (for simpler estates).

  • Form IHT400 if tax is payable or if the estate includes more complex assets such as business property or trusts.

If Inheritance Tax is due, it must be paid within six months after the end of the month in which the person died. Interest is charged on late payments.

Executors may pay the tax using funds from the estate, personal funds, or through the Direct Payment Scheme if the deceased had sufficient money in bank accounts.

Step 7: Keep Records

Executors should keep all documents and evidence used to prepare the valuation, including:

  • Bank statements and property valuations

  • Letters from HMRC or financial institutions

  • Receipts for debts and funeral expenses

  • Copies of correspondence with valuers or accountants

These should be retained for at least 20 years after the person’s death, in case HMRC later reviews the valuation.

Common Valuation Mistakes to Avoid

  • Using insurance values instead of open market values for property or belongings.

  • Forgetting to include gifts made within the last seven years.

  • Ignoring foreign assets that are still subject to UK Inheritance Tax.

  • Failing to deduct debts accurately.

  • Overestimating charitable exemptions or not claiming available allowances.

A professional valuation or advice from an accountant can help prevent these errors and ensure compliance with HMRC rules.

The Role of an Accountant or Solicitor

An accountant or solicitor experienced in probate and tax can help by:

  • Valuing complex assets such as businesses or investments.

  • Preparing accurate IHT calculations and completing HMRC forms.

  • Advising on allowances, reliefs, and potential tax-saving strategies.

  • Ensuring deadlines are met and reducing the risk of penalties or interest.

Professional support gives executors confidence that the estate is handled correctly and that beneficiaries receive their inheritance as intended.

Conclusion

Valuing an estate for Inheritance Tax is a detailed process that requires careful record keeping and accurate valuations of all assets and debts. While it may seem complex, following the correct steps ensures that tax is calculated fairly and avoids future disputes with HMRC.

Executors should gather as much evidence as possible and seek professional guidance for complex estates. With proper preparation, you can ensure that the estate is valued accurately, Inheritance Tax is paid correctly, and beneficiaries receive their inheritance without unnecessary delay or expense.