How to value an estate for inheritance tax
Your 'estate' is everything you own when you die, minus what you owe. Valuing it is the first step in working out whether inheritance tax (IHT) is due and in applying for probate. This guide walks through what counts, what doesn't, and the allowances that shelter most estates.
What goes into the estate
Add up the open-market value of everything owned at the date of death:
- Property — the main home and any others, at market value.
- Cash, bank and building society accounts, and savings.
- Investments — ISAs, shares, bonds and funds (ISAs lose their tax shelter on death).
- Possessions — cars, jewellery, art, furniture.
- Business and agricultural assets (which may qualify for relief).
- Money owed to the deceased.
What you subtract
From the asset total, deduct liabilities: the outstanding mortgage, loans, credit cards, outstanding bills and reasonable funeral expenses. The result is the net estate.
What usually doesn't count
Some assets typically fall outside the estate for IHT:
- Life insurance written in trust — pays out directly to beneficiaries, bypassing the estate.
- Most pensions — currently outside the estate, though this changes from April 2027 when unused pension funds are due to be brought into IHT.
- Assets held jointly that pass automatically to the survivor (though their value still counts towards the estate total).
Put life cover in trust
The nil-rate bands
Two allowances shelter the estate before 40% tax bites:
- Nil-rate band (NRB): £325,000 per person.
- Residence nil-rate band (RNRB): £175,000 if you leave your home to children or grandchildren. It tapers away above a £2m estate.
Married couples and civil partners can transfer unused allowances, so a surviving spouse can have up to £1,000,000 of combined allowances.
A £520,000 estate
Consider a home worth £400,000, £100,000 of savings and investments, and £20,000 of possessions, with a £120,000 mortgage and £9,500 of other debts and funeral costs. Net estate = £520,000 − £129,500 = £390,500. For a single person leaving the home to children, allowances of £325,000 + £175,000 = £500,000 cover it entirely, so no IHT is due.
Common estate valuation mistakes
- Valuing the home too low. HMRC can challenge under-valuations; use a proper market valuation, not a guess.
- Forgetting gifts in the last 7 years. Gifts made within seven years of death can use up the nil-rate band — see the gift calculator.
- Assuming pensions are always outside IHT. From April 2027 unused pension funds are due to count towards the estate.
- Ignoring jointly-held assets. A share of a jointly-owned property or account still forms part of the estate value.