How do I value Assets for Probate?

The normal rule

In general terms the Inheritance Tax value is the price which the property might reasonably be expected to fetch if sold on the open market at the date of death, ignoring the costs of sale and without reduction on the ground that the whole property is placed on the market at the same time (IHTA 1984 s160).

While a price realised on sale after death may give some indication of the value of the property at death, hindsight is not generally admitted. Relief is available when sales are made of shares within one year or land within four years after death at a value lower than probate; see below.

Note that open market value applies even if the property can be sold only to certain people or at a certain price or otherwise subject to restrictions. However, if those restrictions will necessarily bind the purchaser the market price will be lower than it would have been in the absence of restrictions at all. Where there is a restriction or exclusion on the right to dispose, that restriction or exclusion is to be taken into account only to the extent that consideration in money or money’s worth was given for it.

On death the property is to be valued as it was immediately before the death. However, changes which occur by reason of the death are generally taken into account. This would accordingly cover the value of life assurance policies and, negatively for example, any goodwill in a business which depended directly upon the deceased personally.

Shares and securities

For quoted stocks and shares the Capital Gains Tax quarter up rule is employed which means the ¼ of the difference between the bid and sale price quoted by the stock market added to the bid price.

Unquoted shares must be valued on an estimated basis assuming an open market but given that the hypothetical purchase will take place in a restricted market. It is presumed that the purchaser has all the information which might be required by a prudent prospective purchaser proposing to purchase from a willing vendor by private treaty at arm’s length.

Accrued income to date of death

Accrued income from quoted securities which are not ex-div is included in the valuation (net of lower rate tax). Rents and other income must be apportioned as at the date of death.

Debts due to deceased

A debt due to the deceased is assumed to be paid in full unless and to the extent that recovery is impossible or not reasonably practicable.

Shares sold at a loss within 12 months after death

If qualifying investments are sold at a lower value within 12 months after death, that lower value may be used instead of the agreed value at death, subject to a claim being made. Where the sale is made pursuant to a contract the date of contract is the critical one. “Qualifying investments” are broadly quoted shares and securities and units in authorised unit trusts Quoted shares will include USM/AIM listed shares for this purpose. If there is more than one sale of a qualifying investment these must be aggregated for the purposes of the relief. If the total sums received are less than the principal value at the date of death, that difference (the loss on sale) is deducted from the value at death.

A claim may also be made where the stock exchange quotation of, or the USM dealing in, a qualifying investment is suspended on the first anniversary of the death or where such an investment has been cancelled without replacement within the 12 month period after death.

Example

Dan’s estate included four parcels of quoted shares each worth £5,000 at death and in the following 12 months three parcels were sold at £3,000, £4,000 and £6,000 respectively. The loss on sale is:

£15,000 – £13,000 = £2,000

and the probate value of the shares will, on a claim, be reduced to £18,000.

The Revenue can substitute for the actual sale price the best consideration which could reasonably have been obtained. Any commission or stamp duty, sale expenses and Capital Gains Tax liability are ignored.

The relief applies only if the sale is effected by the “appropriate person” :- the person liable for the tax, i.e. the PRs, trustees or the beneficiary. Where there is more than one such person (as is not unusual), the appropriate person is the one who actually pays the tax.

Land sold at a loss within 4 years after death

A similar rule applies to the sale of land within four years after the death. No relief is given if the decline in value is less than the lower of £1,000 or 5% of the value at death. Again, the critical date is that of the contract.

If there is more than one sale, all sales within the three years following death must be taken to ascertain the total loss. A sale in the fourth year following death need be taken into account only if it results in a loss.

The same “appropriate person” restriction applies as for sales of shares.

Example

Mary died on 1st December 1989. Her assets included three parcels of land, of which Blackacre was sold in February 1990, Greenacre in March 1991 and Whiteacre in May 1992.

Value at

date of death    Sale value    Profit or loss

Blackacre          £25,000         £24,100         (£900)

Greenacre         £10,000         £10,750          £750

Whiteacre         £30,000         £27,000        (£3,000)

TOTAL              £65,000         £61,850        (£3,150)

The total loss is £3,150. However, the loss of £900 on Blackacre is not taken into account, being less than both £1,000 and 5% of the value of the property at death. The adjusted overall loss is therefore reduced to £2,250.

Generally, any changes in the land between the date of death and sale must be taken into account. If the land is a lease with less than 50 years to run, the value must be increased to take account of the loss accruing through passage of time. Any adjustments must be made due to related property being included in the estate.

If the claimant reinvests in land within the period beginning with the death and ending four months after the last sale within the three years following death in respect of which he claims relief, then if the total purchase prices (A) exceed the total sales (B) no relief may be claimed. If the purchase prices do not exceed the sales, then the fraction AIB is applied to the sale price of each parcel of land for which a claim is made and the resulting amount added to it. While the relief does not apply to sales to certain connected persons, exploitation of this rule is prevented by providing that gains made on such sales by the claimant acting in the same capacity must be offset against any losses (s196).

Difference between rules for shares and rules for land

In both cases the rule applies notwithstanding intervening changes in the market. However, the time limits must be strictly observed and there is no provision for extension by the Revenue.

There is one important difference between the two reliefs. A sale of land by a PR or trustee to the beneficiary or to a spouse or a descendant of the beneficiary or to trustees of a settlement in which such a person has an interest in possession will not attract relief, even if made at market value at the date of sale. Note that this restriction does not apply in the case of a sale to a parent of the beneficiary or to trustees of a discretionary settlement (nor indeed to the relief for shares).