Personal wealth
How much are you really worth?

Estimating your "true worth" may seem like a simple task, but with so many areas of your finances relying on the figures being right it is not something to be taken lightly.

Understanding the actual value of all of your assets, including property, personal belongings, fine wines, investments and even pension funds, will not only help you to plan for inheritance tax (IHT) effectively and can even take some of the guesswork out of saving for your retirement.

Broadly speaking, personal wealth is a combination of physical assets, together with savings and investments, minus liabilities. For the Revenue's IHT purposes, you need to have your personal effects professionally valued, and it would be inappropriate to second guess their worth as it could potentially leave your beneficiaries open to difficulties with the Revenue.

The increasing number of people who are subject to IHT thanks to rising property prices is a key reason to ensure you know how much you are really worth at certain stages in your life. HM Revenue & Customs has been making it harder for us to plan our way out of IHT bills, and the latest weapon in the armoury is a four-page form - D10 - which requests the value of all personal and household goods.

You need to include everything you own - from shares through to the personalised number plate on the Jaguar parked on the drive, which can now be worth a considerable sum. If your executors fail to deal with this properly, they face a fine and can, in extreme circumstances, be imprisoned.

If your estate is worth more than £300,000 for the 2007/8 tax year - the amount you can leave behind before your beneficiaries pay any IHT - then everything above that level will be taxed at 40 per cent. Some people become higher rate taxpayers for the first time after they have died.

The point at which you make a will is often the first time many people have to really assess what assets and liabilities they actually have. To ensure you do not omit any of your assets, you could use an "asset schedule" which would include data about everything you own - and owe. Both will be relevant for the executors of your estate, and will also remind you to include items that are easily forgotten.

For inheritance tax purposes it is also important to remember to factor back in any gifts of capital that exceed the annual gift allowance, currently £3,000 per person for each financial year. Gifts that exceed this allowance are potentially included within your estate should you die within seven years of making the gift. Once the seven years have elapsed the gift falls outside of the IHT assessment.

IHT is very complicated, and while it is vital to plan for, it is only one aspect of your finances that can be helped by understanding your true worth. Insuring your assets adequately while you are alive is equally important, and is becoming more so as people increasingly rely on their houses to fund retirement.

To establish the value of your insurable assets, you should ideally get an assessor to help you. When detailing the value of your belongings, most assessors start with the building, then move on to all the contents, including the item that is most often overlooked - clothes.

It is a good idea to periodically value your items of significant worth. Without doing so you may be underinsured. An insurer could potentially reduce the amount payable in proportion to the amount by which you may be underinsured.

If you require any further information about the services that we provide or would like to review your financial planning position, please email or contact us.

Levels and bases of, and reliefs from, taxation are subject to change.
Article date: 06.07