Valuing an estate for Inheritance Tax - worked example

The example below shows how the Inheritance Tax due from the deceased's estate is worked out.

Inheritance Tax example

Robert died on 10 April 2011 leaving his estate to his daughter. The Inheritance Tax threshold for the 2012-13 tax year is £325,000.

Inheritance Tax is payable at a rate of either:

• 40 per cent
• 36 per cent, if ten per cent or more of the net estate is left to charity

In this example, none of the estate is left to charity.

Value of Robert's assets:

• house = £300,000
• car = £7,500
• household goods = £2,000
• bank account = £19,000
• shares = £30,000
• Premium Bonds = £500

Total value = £359,000

Value of Robert's debts that can be deducted from the value of the estate:

• telephone bill = £55
• electricity bill = £45
• gas bill = £35
• funeral expenses = £865

Total deductions = £1,000

Net value of Robert's estate = £358,000

Inheritance Tax payable

Inheritance Tax is due because the net value of the estate is above the Inheritance Tax threshold of £325,000. Inheritance Tax is payable at 40 per cent on the amount over the threshold:

• net value of Robert's estate = £358,000
• less threshold = £325,000
• amount subject to Inheritance Tax = £33,000

Inheritance Tax payable = £13,200 (£33,000 x 0.4 (40 per cent))

Interest is charged on any tax not paid by the due date, no matter what caused the delay in payment.

Interest rates change from time to time, you can follow the link below to see interest rates from October 1988 to date.

• List of interest rates going back to October 1988

More useful links

Find out more about Inheritance Tax and the probate process and the forms you need by following the links below.

• Inheritance Tax and the probate process
• Inheritance Tax and probate forms