The law requires that you value an estate of a person who has died before you can get probate, the legal authority to deal with a deceased person’s affairs and to distribute any inheritances. You are also required to value an estate by HMRC so that any inheritance tax due can be calculated. The threshold for inheritance tax is £325,000, but even if you are sure no inheritance tax will be due, you must still value the estate.
If you are named as executor in the deceased person’s will, then you have responsibility for valuing the estate and passing that information on to your local Probate Registry office as well as to HMRC. Once you have applied to the Probate Registry, they will invite you for an interview where you will be asked to swear on oath that the facts you have presented in your application are true and accurate to the best of your knowledge.
HMRC will evaluate the information you have given them and inform you if any inheritance tax is due for payment. There will be no tax to pay if the total net value of the estate is below £324,000 or the whole estate is going to a surviving spouse or civil partner.
If there is no will and so no named executor; if the will has failed to name an executor; or the person named as executor does not want to fulfil that role, an administrator, usually a close relative should be chosen. They then have the same responsibilities as the executor and must value the estate, passing this information to the Probate Registry and HMRC.
The value of the estate is calculated by adding up all the assets, including any gifts that the deceased person has made in the seven years before his or her death. Assets include such items as property, vehicles, jewellery, artworks and antiques. HMRC advise that you should have any single item with a value of more than £500 assessed by a professional valuer.
Gifts are defined as anything with a value including property, cash and possessions. Gifts given to spouses or civil partners are exempt from inheritance tax. Gifts made between three and seven years prior to death are taxed at a sliding rate which HMRC calls taper relief.
Once you have the total of assets, you need to subtract any debts owed by the estate such as bank loans, mortgages or utility bills. The total of the debts are then subtracted from the total of the assets to give the net worth of the estate which is the amount that tax will be assessed on. You can subtract the costs of the funeral from the estate.