Preparing estate information before using an inheritance tax estimate
Any inheritance tax estimate is only as good as the information behind it. Before you value a single figure, the material has to exist: a list of what the person owned, what they owed, and a record of what they gave away in the seven years before they died. This article walks through collecting that material. It stops there — no estimated values, no calculator, and no view on what any individual will owe.
Why the order matters
HM Revenue and Customs sets out three main tasks for valuing an estate: identify the person's assets and debts; estimate the estate's value; then report the value. How and whether you report depends on whether you need to send full details of the estate and its value.
If probate is needed, the valuation work happens before you apply for probate. Rushing straight to an estimate therefore leaves you with the number and none of the evidence behind it.
Start with two lists: assets and debts
Assets cover bank accounts, savings and pensions, plus property, household goods and personal items. Debts cover utility bills, mortgages and money owed on credit cards — and they also include funeral expenses such as the cost of a funeral director, a headstone or plaque, and refreshments.
For each entry, note the value at the date of death. An organisation's current balance is not the same thing.
Work out who holds what
Begin by finding out which organisations to contact. Search through the person's papers, or ask friends, family and any solicitor or accountant they had.
Then write to those organisations asking for the value of the asset or debt when the person died. You'll need to include a copy of the death certificate.
The organisations that commonly hold a person's assets include:
- their bank
- their pension provider — ask whether any private pension should be included when you value the estate
- their employer, as the person may be owed wages
- any companies they held shares in, including the number of shares, company details and the share certificate number if you have it
- National Savings and Investments (NS&I) for Premium Bonds, using their free tracing service if you cannot find the certificates
- other organisations holding assets such as ISAs, shares, investments or assets in a trust
- their landlord, if they had one, as the person may have paid rent in advance
In the bank letter, ask for three things
The first letter to the bank should carry the value request and two operational requests:
- The value of the accounts at the date of death.
- A list of any standing orders and direct debits, so they can be stopped — or transferred, if they were in a joint name.
- A list of any share certificates or deeds the bank was holding for the person who died.
Handle the mortgage on its own terms
A mortgage is a debt, but it does not simply net off against the property value.
Start by asking the mortgage lender whether they require payments to continue while you're applying for probate. If they do, you have two routes:
- Pay these bills yourself, and reclaim them from the estate once you have probate.
- Check whether the person had a life assurance or mortgage protection policy that covers these payments.
Ask the lender rather than assuming either answer — the requirement, and any protection cover, is a condition set by the lender and the policy.
Reconstruct gifts from the seven-year window
The person dealing with the estate will need to work out what gifts were given in the 7 years before death. For each one, keep three things on record:
- what was given, and who received it
- the value of the gift
- when it was given
Who pays the tax depends on the total. Inheritance Tax due on gifts is usually paid by the estate — unless more than £325,000 in gifts was given away in the 7 years before death. Once that limit is passed, anyone who received a gift in those 7 years will have to pay Inheritance Tax on their gift.
Keep the evidence, not just the recollection. Values and dates are easier to verify from bank statements and paperwork than from memory years later.
What to have in front of you
By the end of this stage you should hold:
| Item | Detail needed |
|---|---|
| Assets | Holder, description, value at date of death |
| Debts | Creditor, description, amount at date of death |
| Funeral expenses | Funeral director, headstone or plaque, refreshments |
| Bank admin | Standing orders, direct debits, share certificates or deeds held |
| Mortgage | Lender's probate payment requirement, and any protection policy |
| Gifts | What, to whom, value, date — across 7 years |
With that file assembled, estimating the estate's value becomes a matter of applying the relevant rules to known figures. The estimate itself, and the reporting that follows it, is the next stage.