IHTM25103 - 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 (remember to enter the date of death in pencil at the top of the balance sheet if it is not the same as the date of the accounts). If there is a gap of only a few weeks 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 more than a month before the death, you will need to decide if the tax at stake makes it worth asking for the date of death figures. If so, you should ask for a figure for the deceased's share of profits less drawings from the date of the balance sheet to the date of death. This figure should then be added to the deceased's capital account.

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.

Bear in mind that the taxpayer will not always have up to date accounts when they obtain probate and may initially supply an old set of accounts. Whilst these can be useful for providing details of the partnership assets, do not forget to call for delivery of 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/decreases should, unless the partnership agreement specifies otherwise, be shared amongst the partners according to the profit sharing ratios.