Inheritance Tax  

How to help clients value their estate

This article is part of
Guide to saving your clients IHT

One of the biggest problems with IHT is the lack of understanding. Many people simply do not know how much tax their dependants may end up paying, partly because they do not know how to assess the value of their estate accurately.

Recent figures from a survey commissioned by provider Canada Life revealed the majority of over-45s do not know how much inheritance they will pass onto their beneficiaries.

Canada Life’s 2019 IHT Monitor also revealed 63 per cent of over 45s have not told their beneficiaries how much inheritance they plan to leave.

Mr Jones comments: “There is a clear disconnect among over-45s between their desire to leave something behind to their beneficiaries and the need to fund their own retirement.

“It seems many are losing the battle, acknowledging they don’t know how much they can leave behind to the next generation.”

So how can advisers help clients assess the value of their estate accurately so proper financial planning can begin?

Nucleus head of product technical Tracyann Kneen states: “An individual may calculate the value of their estate, using guidance from HMRC.

“But clearly a qualified professional is best placed to value someone’s taxable estate, as well as provide recommendations to reduce the taxable value subject to the progressive tax that is IHT.”

Firstly, assessing the estate means valuing all the assets owned or shared at the time of death, although as SimplyBiz’s Mr Pickles adds, the value of an estate is constantly changing: “While the crucial value is at the date of death, there is some flexibility for reassessment, should the value have decreased when realised by the beneficiaries”.

So what is included in the estate?

Ms Beech says: “If the deceased owns any property - or a share in a property - it must be included in their estate for IHT purposes. This must include the value of the property at the time of the person’s death.

“Any stocks and shares must also be included at the time of death. If the shares are listed on the London Stock Exchange, for instance, the value can be determined quite simply. However, if the deceased had shares in different companies, a professional valuation may be recommended.”

While valuing cash and quoted shares is relatively simple, it might be necessary for a financial adviser to help clients obtain a professional valuation of other assets whose value might not be readily apparent.

These additional assets can include:

  • Property
  • Land
  • Jewellery
  • Artwork
  • Vintage cars
  • Antiques
  • Furniture and furnishings
  • Life insurance policies not written into trust
  • Anything else which has re-sale value (such as any items listed on insurance policies).

Any non-exempt gifts made in the seven years before death may be included in the estate.

Ms Beech continues: “There are several other additional factors to consider when valuing an estate, including whether the ownership of any property and assets was shared between one or more individuals. Property owned as joint tenants will pass automatically to the survivor outside of the estate.”