Valuation process
After a person’s death, all their assets, including bank and building society accounts, are automatically frozen. Any power of attorney or third party mandate will be cancelled immediately and no access to the assets possible. This is the case whether or not the person left a will.
Unless the estate is very small and probate is not required (to check, please see the section in Lasting Post called Is probate required?), all the assets will remain frozen until the Probate Registry makes the grant of representation to the personal representatives.
A valuation for inheritance tax purposes required
As part of the application to the Probate Registry, you, as the personal representatives, will need to produce a valuation of the deceased’s estate to ascertain whether or not Inheritance Tax is payable.
If estate is small and qualifies as an ‘excepted estate’
If the estate is small and qualifies as an ‘excepted estate,’ you will need to complete a Return of Estate Information, detailing the assets and liabilities of the estate, to be submitted directly to the Probate Registry and not to HM Revenue & Customs.
Most estates are excepted estates. To determine if an estate is an excepted estate, please see the separate section of Lasting Post on Excepted estates.
If estate is not an ‘excepted estate’
If the estate is not an excepted estate then you will need to complete an Inheritance Tax Account and submit it to HM Revenue & Customs.
This account will detail the assets and liabilities of the estate and confirming either that the Inheritance Tax, due on the delivery of the form to HM Revenue & Customs, has been paid or that there is no Inheritance Tax payable.
The Probate Registry will not usually issue the grant of representation until this is done.
Assets will be unfrozen only after grant of representation issued
Only when the grant of representation has been issued will the assets be unfrozen.
The personal representatives can then go ahead and distribute them in accordance with the deceased’s wishes as set out in their will or under the rules of intestacy.
Basic calculation for inheritance tax valuation
To calculate the value of a person’s estate you need to take all the assets they owned at the time of their death which gives the ‘gross’ value of the estate and then deduct everything that they owed to reach the ‘net’ valuation.
The assets will include any house, car, furniture, savings, life insurance policies, personal possessions, jewellery and anything capable of being valued and of being transferred to one person to another. Account will also need to be taken in the calculation of certain assets that they gave away in the seven years before their death.
The liabilities may include a mortgage, outstanding bills, etc and will also include the funeral expenses.
You then need to take account of all the allowable additions and deductions to reach the amount on which Inheritance Tax is chargeable. For example, add back gifts made by the deceased person in the seven years before their death (over the limits set) and deduct a transfer to the person’ surviving spouse.
Complicating factors for the valuation
Typical factors which can create problems and complicate the valuation process include:
1. The need to go through and sort out numerous old papers.
2. Searching for details of lifetime gifts which the deceased may have made.
3. Difficulty in realising assets or in settling tax or other liabilities.
4. Difficulty in tracing beneficiaries or in dealing with beneficiaries who are under age.
5. Foreign property and the need to liaise with foreign lawyers.
6. Trusts in which the deceased had an interest.
7. Agricultural or business property, especially Lloyd’s insurance assets which can’t be wound up for at least three years.
8. Agreeing the values of specific assets with HM Revenue & Customs.
Please note
The information which we provide through Lasting Post is in outline for information or educational purposes only. The information is not a substitute for the professional judgment of a solicitor, accountant or other professional adviser. We cannot guarantee that information provided by Lasting Post will meet your individual needs, as this will very much depend on your individual circumstances. You should therefore use the information only as a starting point for your enquiries.