When an individual dies everything they own is valued to calculate the inheritance tax (IHT) due on their estate. These assets include the deceased’s main home and any let properties they may own.
All of the assets must be valued based on a deemed transfer at open market value immediately before the deceased’s death. It is the condition of the assets as they existed at the date of death that is important, not the value at some later date after any pre-sale adjustments have been made.
Where a let property has a tenant in occupation at the date of death the value of that property for IHT purposes is the tenanted value – how much the property could be sold for with the tenant in residence – not the ‘with vacant possession’ value.
This value should also take account of the unexpired period on the lease or licence at the date of death, as a longer outstanding lease period will generate a higher discount on the vacant possession value than a shorter lease term.
Where the property is jointly owned, only the proportion of the value attributable to the deceased should be included in the estate. It is crucial to find out whether the property is owned as joint tenants (‘joint owners’ in Scotland) or as tenants in common (‘common ownership’ in Scotland). The executors also need to know the relationship between any joint tenants as this determines the valuation method.
We can help you with the IHT forms at this difficult time, so please get in touch.