When an individual passes away, everything they own is valued to calculate the inheritance tax (IHT) that is due on their estate. This includes assets such as the deceased’s main home, and any let properties they own.
These assets must be valued based on a deemed transfer at the open market value immediately before the individual’s death. This means that it is the asset’s condition at the date of the death that is most important, not the value determined later after pre-sale adjustments.
How Is The IHT Calculated?
Should a let property have a tenant in occupation at the date of the death, the property’s value when it comes to IHT will be the tenanted value. This relates to how much the property could be sold for with the tenant in residence, rather than the value ‘with vacant possession’. The value should consider the expired period on the lease or licence at the date of death. This is because a longer outstanding lease period will generate a higher discount on the vacant possession value than it would on a shorter lease term.
In the instance whereby a property is jointly owned, the estate will only include the proportion of the value attributable to the deceased. This makes it vital to determine whether the property is owned as joint tenants (known as ‘joint owners’ in Scotland) or as tenants in common (known as ‘common ownership’ in Scotland). The executors also need to know the relationship between any joint tenants as this determines the valuation method.
As always, our team can help you with IHT forms at this difficult time, so please get in touch to arrange an appointment at your convenience.