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Business Valuation

Also known as: Company Valuation, Business Worth Assessment

Definition

Business valuation is the process of determining the worth of your business, company shares, or business assets for inheritance tax and probate purposes at the date of death.

Understanding your business value is essential for will planning because it determines inheritance tax liability and ensures your business legacy passes to your chosen beneficiaries according to your wishes.

What Does Business Valuation Mean?

Under the Inheritance Tax Act 1984, Section 160, HMRC requires all business assets to be valued at "open market value"—the price they would reasonably fetch if sold on the open market at the date of death. This applies whether you're a sole trader, partner, or shareholder. Even if no inheritance tax is payable, personal representatives must complete business valuation to fulfil their legal obligations during probate.

Business valuation can take two approaches. For businesses that would cease trading, valuers assess individual assets and liabilities at open market values. For businesses sold as going concerns, valuers consider trading performance, comparable transactions, and goodwill. HMRC strongly recommends qualified, independent valuers, particularly for unquoted shares in private companies. Sarah runs a graphic design business as a sole trader. Her executors value her business equipment (£15,000), client contracts (£8,000), and work-in-progress (£3,000) at open market values. The total business valuation of £26,000 forms part of her taxable estate.

Business Property Relief can reduce taxable value by 50% or 100%, but valuation remains required. From April 2026, relief will be capped at the first £1 million of combined business and agricultural property. David owns 60% of shares in his family manufacturing company. Even with 100% Business Property Relief, his executors commission a professional valuation showing his shareholding is worth £450,000. This establishes his children's Capital Gains Tax base cost when they eventually sell.

Business valuation is an area of high HMRC scrutiny. Professional valuations reduce challenge risk and provide defensible documentation. Emma is a 25% partner in an architecture firm. The valuer determines her partnership interest is worth £180,000, considering assets, goodwill, and minority interest discounts.

Common Questions

"When do I need a business valuation for my will?" You need a business valuation when including business assets or company shares in your will to establish their worth for inheritance tax purposes. HMRC requires you to value all business assets at their 'open market value'—what they would fetch if sold on the date of death. This applies whether you're a sole trader, partner, or shareholder.

"Can I value my own business for inheritance tax purposes?" While you can estimate your business value yourself for initial planning, HMRC strongly recommends using a qualified, independent valuer for official inheritance tax valuations. DIY valuations carry high risk of HMRC challenge. Professional valuations are especially important for shares in private companies, partnerships, and businesses claiming Business Property Relief.

"Does Business Property Relief mean I don't need a valuation?" No. Even if your business qualifies for 100% Business Property Relief (which eliminates inheritance tax), you still need a proper valuation. This establishes the probate value of assets and determines beneficiaries' base cost for Capital Gains Tax when they eventually sell the business or shares.

Common Misconceptions

Myth: "I don't need to value my business if it qualifies for Business Property Relief."

Reality: You must value your business even with 100% Business Property Relief. The valuation establishes probate value and sets the Capital Gains Tax base cost for beneficiaries. HMRC requires valuation on inheritance tax forms regardless of tax payable.

Myth: "I can just use my accountant's book value for inheritance tax purposes."

Reality: Book value is almost never the same as open market value required for inheritance tax. HMRC requires the price your business would fetch if sold, considering goodwill, market conditions, and comparable transactions that don't appear in accounting records.

  • Business Assets: Individual components that determine business value, including equipment, inventory, and goodwill.
  • Company Shares: Business ownership requiring specialized valuation, particularly complex for unquoted shares.
  • Estate Valuation: The comprehensive process that includes business valuation for inheritance tax purposes.
  • Inheritance Tax (IHT): The tax that business valuation calculations support before reliefs are applied.
  • Business Property Relief (BPR): Inheritance tax relief that reduces tax on qualifying business property after valuation.

Need Help with Your Will?

Once you understand your business value, including it in your will protects your family's interests and ensures business assets pass according to your wishes. Business succession requires clear, legally binding instructions.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete, legally binding will plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.