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HMRC internal manual

Inheritance Tax Manual

Valuing the partnership interest: The balance sheet

You will need to check the balance sheet if the open market value of the deceased’s share is required.

First, check that the accounts are to the date of death or very close to it.  If there is only a short gap between the two dates, you can accept the accounts as representing the position as at the date of death.  If there is a bigger gap, for example if the accounts were prepared several months before the death, you will need to decide if the tax at stake makes it worth asking for the date of death figures.

If the deceased died late in the partnership’s financial year, the taxpayers may tell you that they do not intend to prepare a date of death set of accounts but to wait until the next year end accounts are due.  Those accounts should show the deceased’s share of profits apportioned up to the date of death and so long as they do, they can be accepted for our purposes.

The taxpayer will not always have up to date accounts when they obtain probate and may initially supply an earlier set of accounts.  Whilst these can be useful for providing details of the partnership assets, do not forget to call for the date of death accounts.

Remember also that the deceased’s capital account figure shown in the balance sheet will hardly ever reflect the open market values of the partnership assets, e.g. land.  That figure provides a starting point from which any additions or deductions resulting from examination of the partnership assets should be made.

The principles of balance sheet examination in partnership cases are the same as for sole‑trader businesses (IHTM25082) with the difference that any increases or decreases should, unless the partnership agreement specifies otherwise, be shared amongst the partners according to the profit‑sharing ratios.