Calculating the Value of an Estate for Probate & Inheritance Tax
29 May 2018
When a person dies, one of the most important tasks of the person dealing with their Estate (known as the Personal Representative) is to determine the value of their Estate.
In England and Wales, a person's Estate is legally defined as being everything that the person owned immediately before death. The Estate assets can include everything from money in the bank, properties, pension policies, shares and investments, to personal possessions and goods such as vehicles and jewellery.
The valuation of the Estate plays a crucial role in the Estate administration process as it can help to determine whether a Grant of Probate will be required. Calculating the value of an Estate is also essential in order to establish whether Inheritance Tax will need to be paid, and how much if so.
With our Probate Complete Service we take full responsibility for getting Grant of Probate and dealing with the Legal, Tax (excluding VAT), Property and Estate Administration affairs*.
*We can also pay all the costs of a Co-op Funeralcare funeral, providing the Estate owns sufficient assets which can be sold in due course to repay our costs.
Calculating the Estate Value
To calculate the Estate value, the Personal Representative must first establish what the Estate is composed of. This will include all of its assets as well as any liabilities (debts).
The Estate assets do not only include material assets that were held in the deceased’s name. They can also include any money that the deceased was owed, the contents of their bank accounts and any interest they had in a Trust.
Care should be taken in identifying any potential foreign assets as their value must also be included in the overall value of the Estate. Sometimes, these assets can make the Estate administration more complex, as a foreign Grant of Probate may be required to deal with them.
Estate Liabilities (Debts)
The Estate ‘liabilities’ represent the deceased’s debts at the time of their death. These usually consist of any account debits, loans, mortgages, credit cards etc.
One of the main liabilities of an Estate and the first one that must be settled is the funeral bill.
A deceased's assets are added up to give the gross Estate value, from which the liabilities are deducted to give the Personal Representative the net Estate value.
The situation may arise where the value of the liabilities is higher than that of the assets. In this case, the Estate is ‘insolvent’ which means that there are insufficient funds in the Estate to settle the deceased's debts. For more information, see What is an Insolvent Estate?
Accurately calculating the value of the Estate is particularly important because this determines whether the Estate will be subject to Inheritance Tax.
Every Estate has a tax-free allowance, meaning that anything under this limit (called the ‘threshold’) is not liable for Inheritance Tax. The current threshold for a non-taxable Estate as set by HM Revenue & Customs is £325,000.
This means that Estates with a value of £325,000 or less will not need to pay any Inheritance Tax. For Estates over this value, Inheritance Tax will be charged on the value that falls above the threshold. For example, if an Estate is worth £400,000, then £325,000 will not be taxable, but Inheritance Tax will be charged on the remaining £75,000.
A further £100,000 tax free allowance may be available with the Residence Nil Rate Band. This is a relatively new Inheritance Tax allowance which reduces Inheritance Tax liability on an Estate where the deceased’s home is being passed down to their children or grandchildren. The Residence Nil Rate Band is subject to various conditions, for more information see Residence Nil Rate Band Explained.
The current Inheritance Tax rate in England and Wales is 40% which is reduced to 36% when at least 10% of the Estate value has been gifted to charity.
Inheritance Tax Exemptions
After calculating the value of the Estate, the Executor or Personal representative must also consider any exemptions that may applied. This is where Inheritance Tax does not need to be paid on certain assets that are being inherited by certain Beneficiaries.
Depending on the identity of the deceased, who will be inheriting from their Estate and the nature of the assets, these could include:
- Spouse or civil partner exemptions - where someone leaves their whole Estate to their spouse, no Inheritance Tax will need to be paid
- Charity exemption – if someone leaves their whole Estate to one or more registered charities, this won’t be liable for Inheritance Tax
- Business and agricultural property relief – some business assets and farmland can be passed on without Inheritance Tax needing to be paid.
All in all, valuing the Estate of a person who has died is among the most important tasks of the Personal Representative. It’s essential to get this right, as if any mistakes are made, the Personal Representative can be held personally accountable for these.
How We Can Help You
If you are acting as a Personal Representative and you are not confident in carrying out all this work yourself, Co-op Legal Services can take the burden off your shoulders. With our Probate Complete Service we take full responsibility for carrying out this work on your behalf.
Our Fixed Fee Probate service includes but is not limited to:
- Locating and valuing all assets
- Identifying liabilities
- Contacting creditors
- Calculating Inheritance Tax
- Completing the tax forms for Inheritance Tax, Income Tax & Capital Gains Tax
- Liaising with HMRC on your behalf
- Selling or transferring property
- Contacting all Beneficiaries
- Managing Estate accounts
- Distributing the Estate.
There are no upfront costs to pay as our Probate and Estate administration fees are deferred and will be taken from the Estate once it is in funds.
When we have provided you with a written quote for the agreed work to be done that price will not change, unless the original information we are given is shown to be incorrect or circumstances change.
Co-op Legal Services is the largest provider of Probate and Estate Administration services in England and Wales, trusted to deal with over £1.3 billion in Estates annually.