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HMRC internal manual

Inheritance Tax Manual

Valuing the business: Investigating the balance sheet

The balance sheet is your main source of information about the value of the business assets and liabilities at the date of death/transfer.

If business relief (IHTM25131) is due at 100% you will only need to check whether any assets should be excluded from qualifying for relief (IHTM25341).

If business relief (IHTM25131) at 100% is not available you will need to consider each item shown in the balance sheet and decide whether it warrants further investigation. You can call on specialists, such as the Valuation Office Agency (VOA) (IHTM23002), to help where necessary.

You should check through the business assets and liabilities and ensure that the open market value is included. In this way you are simply valuing the assets of the business on the assumption that it came to an end on the deceased’s death. Some businesses, however, are sold as a going concern and the sale value may be offered as the date of death value. If the sale price is offered you should question the reasons for this.

Sale values of individual assets can normally be accepted (subject to any checks, e.g. in respect of land and buildings) if the sale took place shortly after the death.

Freehold and Leasehold Property

Refer the values noted to the VOA in the normal way. If agricultural relief has been claimed send form IHT414 (IHTM24255) unless this has already been done, and see if relief is due before referring.

Most businesses require premises from which to operate. It may of course operate from rented property in which case you would expect to find a deduction for rent in the profit and loss account. In such cases details of the tenancy should be obtained as it may have a capital value which should be included as an asset.

As regards leasehold property, if the unexpired term at the date of death is a very short period only it may have a modest market value which may not require reference to the VOA.

Fixed Assets

Fixed assets can include plant and machinery, motor vehicles, office and business equipment, fixtures and fittings. Improvements to property may also be shown in fixed assets.

You should ensure that the values shown fully reflect open market values.  The figure shown is usually the cost less depreciation, or book value. You may wish to check if the figure looks unexpectedly high or low.

Current Assets

In most cases you can accept the figure shown because it shows what those assets cost to purchase or their current market value.

It should be possible from most balance sheets to compare the current year’s figures with the previous year’s. This should help you decide if the current figures look odd in any way.

Land – if land is a current asset then a reference to the VOA is required.

  • Sundry debtors (book debts)- this reflects the amount of money owed to the business.
  • Stock/work in progress


  • Pre-payments or payments in advance- these represent cash paid for insurances, rent, business rates etc. for a period not covered by the current accounts.
  • Investments

You should check if there are any investments which were not used in the business (IHTM25341).

Bank and Building Society accounts will be included at their capital value, and any interest will be shown in the profit and loss account.

  • Cash items

Accept without query.

  • Goodwill

You will rarely find a value for this shown in the balance sheet because a calculation of its value is not required until the business as a whole is being valued. If goodwill is shown it will often be purchased goodwill that is being written off and not the value of the goodwill of the whole business.

No goodwill exists for farming or NHS medical practices.

Refer the investigation of goodwill to SAV (Goodwill). When referring the case you should state the type of business involved as different SAV teams specialise in different types of business.

In some businesses ‘inherent’ goodwill is attached to the land and buildings used in the business and the VOA will include its value in the value of the property. In the following cases the valuation of such goodwill is conducted wholly by the VOA:

  • licenced premises
  • breweries
  • hotels
  • restaurants
  • cinemas
  • theatres
  • mineral undertakings
  • brickworks.

The valuation of any other goodwill element in respect of the above businesses is for SAV.


  • Mortgages

Ensure that the amount shown accurately reflects the sum outstanding at the date of death and see if there was a mortgage protection policy if worth.

In cases where only part of the business land (IHTM25354) qualifies for business relief ensure that the mortgage is apportioned, if necessary, between all the properties on which it was charged and, where only part of a single property qualifies, between the relievable and non-relievable portions.

  • Sundry creditors

These are the sums owed by the business. The provisions of IHTA84/S162 have to be satisfied before a deduction is allowed. If a large amount, in the context of the business as a whole, is involved or the amount suddenly increased in the last year, you should call for a schedule of the liabilities as at the date of the balance sheet and consider further.

  • Overdrafts

Normally these can be accepted.

  • Arrears of wages due to relatives

There has to have been a contract of employment (which need not have been in writing) before this can be allowed. You should consider whether the amount involved warrants further investigation and, if so, call for further details of the agreement in order to confirm that there was a contractual liability.

  • Income Tax and CGT

If these appear as a liability they should be excluded as they are personal not business liabilities.