IHTM25082 - 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. You should consider each item shown in the balance sheet and decide whether it warrants further investigation. You can call on specialist branches, such as the Valuation Office (VO) ( IHTM23002), to help where necessary.

You should indicate that you have checked the balance sheet by ticking through the details shown when you are satisfied with the values offered.

In most cases you will 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 parties object to an asset valuation or offer the sale value as a going concern, refer the case to your manager for advice.

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

Freehold and Leasehold Property

Refer the values noted to the VO 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 the papers.

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.

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

Fixed Assets

Fixed assets can include plant and machinery, motor vehicles, office and business equipment, fixtures and fittings.

Again it is your job to ensure that the values shown properly reflect open market values. The figure shown is usually the cost less depreciation. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

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.

In farming cases which include livestock, refer the case to Shares and Assets Valuation (SAV)(Livestock) for them to consider the value offered. If land is the current asset then a reference to the VO is required.

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. Certain businesses show large changes in current asset values, e.g. stamp dealers, car traders, antique and art dealers.

• Sundry debtors (book debts)

This reflects the amount of money owed to the business.

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

• Growing crops

This is the value of crops growing on the land at the date of the balance sheet (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

When the VO values agricultural land, the growing crops are excluded from the valuation.

These represent cash paid for insurances, rent, business rates etc. for a period not covered by the current accounts. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

• Tenantright and agricultural tenancies

In farming cases tenantright is the amount due from the landlord to the farmer for improvements made to the landlord's property. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

If a tenancy is shown you should consider if there was a potentially exempt transfer or gift with reservation on the granting of the tenancy.

Stocks and shares will be investigated by FACET or SAV as appropriate once full details have been obtained.

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

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

• Goodwill

You will rarely find a value for this shown in the balance sheet simply because a calculation of its value is not required until the business as a whole is being valued.

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 real or leasehold property used in the business and the VO will include its value in the value of the property. In the following cases the valuation of such goodwill is conducted wholly by the VO:

• 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.

Liabilities

• 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.

These are the sums owed by the business. The provisions of IHTA84/S162 have to be satisfied before a deduction is allowed. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

There has to have been a contract of employment (which need not have been in writing) before this can be allowed. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

This refers to the amount taken out of the business by the deceased, usually for ordinary living expenses. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

These are personal not business liabilities and if the amounts are large you should exclude them from the accounts and deduct them instead from the value of the non-instalment property.