Valuing the business: Adjusting the capital account
When you have finalised the values of the assets and liabilities in the balance sheet and, if appropriate, the value of any additional assets or liabilities, the next step is to adjust the capital account. This reflects the value of the deceased/ transferor’s interest for Inheritance Tax.
You should work out the net increase (or decrease) in the balance sheet values and adjust the capital account by this amount.
You may also need to consider any drawings shown in the capital account. These are the amounts taken out of the business by the deceased, usually for ordinary living expenses. If the amount deducted is very large or the capital of the business has decreased substantially, for no apparent reason, you should consider if there have been any gifts.