How to value your estate – and why it is important

‘What is the value of your estate?’

One of the first questions you are asked when making a will or considering your inheritance tax liability is: ‘what is the value of your estate?’ knowing the value of your estate can help you make informed decisions on how to distribute your assets when you pass away, but also it can help plan your financial future when you are alive. Like many people, you may not have considered this before and so may be left wondering what your ‘estate’ actually consists of and how you are supposed to put a value on it.

Why value your estate?

Creating a will and estate plan allows you to leave your assets to whom you choose. However without knowing the value of your estate you wont be able to divide it into specific gifts.

Understanding how much your estate is worth not only allows you to decided how it will be divided up after you pass away, but it also gives you an idea of how much inheritance tax (IHT) you may need to pay, which can help you plan to reduce it.

The executors of your estate (An executor is someone who is named in the will as responsible for dealing with the estate.) will value it fully to start the probate process and begin sending gifts to your beneficiaries.

 To help with the probate process, you can write a comprehensive inventory of your estate and list all your assets and liabilities. This will ensure your executors won’t miss anything when they start the evaluation.

Calculating the value of your estate.

The process to value your estate is straight forward; you need to identify all the assets you own and their value then deduct your liabilities.

Start by listing your assets . These include things like:

• Bank accounts
• ISAs
• Stocks
• Pensions
• Investments
• Life insurance
• Possessions you own, including your house jewellery, cars

It’s not necessary to list each item you own, but you can create categories for your possessions such as ‘furniture’ and ‘jewellery,’ for instance. The most valuable items should be mentioned on their own. As a rule of thumb, and as recommended by HMRC,  any possessions worth over £500 should be valued by a professional to get the most accurate total.

A house is usually a persons biggest asset and should be valued by a Royal Institute of Chartered Surveys (RICS) professional. Alternatively you can get it valued by a local or online estate agent.

If you own your property with your partner or spouse, you will need to calculate the total value of the share of the property that you own.

With personal belongings, the best ways to start is with the highest value products such as jewellery and cars. whereas other items such as books or clothing can be valued based on estimates from the sale prices of similar second-hand items. As with the house if any of these if they are jointly owned you need to calculate your share.

Gifts

Gifts you make in the years prior to your death can also still make up part of your estate so careful planning and record keeping can help those looking after your estate when they apply for probate.  Gifts can also lower the amount of IHT to pay in the future.

Due to the ability to use gifts as a way of reducing your IHT liability we are often asked how easy it is and how to do so. Ther are clear sets of rules when it comes to making financial gifts and becoming familiar with these means no unexpected surprises later. If in doubt it is always best to seek to a professional for advice.

If you die within seven years of making a gift, the value of the gift could be subject to inheritance tax (if the value of the gift exceeds your available nil rate band), this prevents people from avoiding tax on their estate by giving away all their assets before they die.

If the gifts exceed the nil rate band, then the tax on the excess is subject to taper relief depending on how long ago the gifts were made:

0-3 years – full IHT payable at 40%.

3-4 years – IHT payable at 32%.

4-5 years – IHT payable at 24%.

5-6 years – IHT payable at 16%.

6-7 years – IHT payable at 8%.

There are ways to reduce your estate by giving away gifts totally tax free including:

Your annual gift allowance – you have a gift allowance of £3,000 per year that you can give away tax-free. It stacks for one year, so you can give a total of £6,000 away tax-free. However, after two years, it resets to £3,000, so use it wisely!

Gifts worth less than £250 – you can give away as many gifts as you like as long as they are worth less than £250. You also cannot give one of these gifts to someone who has received your £3,000 annual exemption.

Gifts to help with living costs – you can give a gift to pay the living costs of a child under eighteen or an elderly relative without worrying about tax implications.

Wedding gifts – for wedding gifts to be IHT-free, they must be made before the wedding, and the wedding has to happen. You can give up to £5,000 to a child, £2,500 to a grandchild, and £1,000 to friends and other relatives tax-free.

Do you need accurate valuations or estimates?

As mentioned above, when you are planning for IHT, you can use estimated values for your assets and gifts. Many items you own could change in value over the years, so you are dealing with estimations at this point.

The situation is slightly different after your death. HMRC might require professional valuations, especially if the assets are valued over £1,500. In general, you can use estimates if one of the following conditions applies to your situation:

The estate’s gross value is below £250,000

The entirety of the estate passes to your spouse or civil partner, a charity, or an organisation such as community amateur sports club

Dealing with someone else’s estate

If you are sorting out someone else’s affairs and you need to value their estate, there are a few things that can help you with the process. You need to contact any organisation they hold assets with.

Common institutes include:

• Bank
• Pension provider
• Employer
• Mortgage lender/landlord
• Companies they held shares in and other organisations that hold assets such as ISAs, Investments or assets in trust

You should write to the organisations and ask for the value of the asset or debt at the time of the person’s death. You will need to include a copy of the death certificate to your enquiry.

You don’t need to have the value of the estate ready right after a person dies. Deadlines tend to occur only if the estate has to pay IHT.

The main deadlines to keep in mind are:

IHT forms must be sent within a year

Tax payments should begin by the end of the sixth month after the death

You’ll need to report the value to HMRC. In most cases, you can report online. HMRC may also ask you to fill out a paper form.

Knowing the total value of your estate is essential for writing a good Will. Although you don’t need to know all the details (as your executors will assess your estate fully once you pass away), having an outline and keeping track of any gifts you make can help you lower any IHT payable and plan for your beneficiaries in advance.

Valuing your estate is a vital step in estate planning and IHT management. It allows you to make informed decisions about asset distribution, understand potential tax liabilities, and plan for the financial well-being of your beneficiaries. Whether it’s for creating a will or dealing with someone else’s estate, seeking professional advice and maintaining accurate records are essential to navigate the complexities of estate valuation and ensure compliance with legal requirements.

If you would like to speak to a member of the team about your estate planning needs then please drop us a line

For more IHT tips keep an eye on our social pages Facebook Instagram and LinkedIn