Assessing business assets and liabilities 

The balance sheet is a useful starting point, but it often records assets at book value rather than open market value. Land, buildings, machinery, vehicles, stock, cash, investments and work in progress may need to be reviewed separately. Property can rise in value, while old equipment may be worth less than its accounting figure. The valuer also checks debtors, loans, tax liabilities, trade creditors, leases, guarantees and possible claims.

Surplus cash or assets not required for day-to-day trading may also be treated separately. The aim is to establish a realistic net value for the business assets, not simply copy the accounts. Ownership matters too: an asset used by the company may be owned personally, jointly or through another entity, which can affect both valuation and tax relief.

Valuing goodwill and intangible business assets 

Business goodwill is the value created by reputation, customer relationships, location, workforce, systems and the ability to earn more than an ordinary return on physical assets. Other intangible business assets may include:

• brands and reputation
• Intellectual Property (IP) including trademarks, patents, licences, software, databases
• valuable contracts and expansion eg, new markets, goods or services.

These items may not appear fully in the accounts, yet they can form a large part of the final figure. A valuer considers whether goodwill belongs to the business itself or depends mainly on the owner’s personal skills and contacts. Transferable, repeatable income usually supports greater value. Evidence such as renewal rates, contract terms, brand recognition and IP ownership helps distinguish durable goodwill from income that may disappear after the owner passes away.

Market comparisons with similar businesses

Evidence from sales of similar businesses can provide a useful reality check. A valuer may compare transaction prices using valuation multiples based on turnover, earnings, EBITDA or another recognised industry measure. The comparison must be genuinely relevant. Size, location, customer mix, recurring income, margins, growth, management depth and the date of the sale can all change the appropriate multiple. Private company transaction details may also be incomplete.

For that reason, comparable business sales are normally used alongside other methods rather than as a simple formula. A minority shareholding is likely to be worth less per share than a controlling interest because it offers less influence over dividends, strategy and a future sale.

Professional business valuation by financial experts

A qualified independent valuer can select and reconcile the most suitable methods, commonly an earnings approach, an asset-based approach or a discounted cash-flow model. The expert should explain assumptions, adjustments, evidence and any range of reasonable values. A robust professional business valuation is particularly important for unquoted shares, partnerships, specialist property, valuable IP or disputed estates. 

Accountants may prepare and explain the financial information, while chartered valuation professionals may provide the formal opinion. A lawyer experienced in handling complex estates can ensure any agreements are legally binding: share and shareholder agreements, IP, trusts, protecting assets including property, mitigating risk, and (if the need arises) a contentious probate lawyer can also resolve disputes. 

Independence and a clear valuation date matter. Keep a written report rather than relying on an informal estimate, because HMRC Shares and Assets Valuation may test the methodology and supporting evidence.

Consideration of future revenue and growth potential

A buyer pays for expected future benefits, not yesterday’s results alone. Forecasts should therefore reflect the information reasonably available at the valuation date. Relevant factors include:

• the order book
• sales pipeline
• market demand
• legal compliance
• pricing power
• new products
• risk profile
• capacity
• regulation
• competition
• reliance on key people.

The valuer will test whether forecasts are realistic by comparing them with past performance, budgets and external evidence. Higher expected growth may increase value, but greater uncertainty increases the risk applied to those cash flows. This is why future revenue and growth potential must be assessed together with risk. Events known only after the date of death should not usually be treated as if they were known then, although they may sometimes help confirm what the market already expected.

Impact of business relief on Inheritance Tax 

Business Relief for Inheritance Tax does not replace the valuation. The business is valued first, then any available relief is applied. Eligibility depends on the type of business or asset, ownership period and how the business operates. Investment businesses and assets not needed for future business use may not qualify. For deaths on or after 6th April 2026, 100% relief on qualifying agricultural and business property is capped at a combined £2.5 million allowance; qualifying value above the allowance generally receives 50% relief.

An unused allowance may be transferable from a spouse or civil partner, subject to a claim and the rules in force. Because relief rules are detailed and can change, obtain current legal advice before making gifts, restructuring ownership or completing an estate return.

Documentation required for HMRC valuation reviews

Good records make an HMRC valuation review easier to manage. Keep comprehensive and up to date records.

1. Signed accounts.
2. Management accounts.
3. Tax computations.
4. Bank and loan statements.
5. Asset registers.
6. Property and equipment valuations.
7. Stock records, business plans.
8. Budgets and cash-flow forecasts.

Also retain shareholder or partnership agreements, details of share rights, major customer and supplier contracts, IP records, insurance valuations, board minutes, offers for the business and evidence of transactions near the valuation date.

Record why adjustments were made and where each assumption came from. Relevant Inheritance Tax schedules may include forms for business interests or shares, depending on the ownership structure. HMRC may request further information, so the valuation file should provide a clear audit trail from the source documents to the reported figure.

Legal and financial advice when valuing a business

A business valuation affects the estate return, the tax payable, negotiations with HMRC and sometimes the interests of family members or other shareholders. What role do professional advisers play?

• A solicitor can review wills, trusts, shareholder agreements, ownership, governance, succession arrangements and the legal rights attached to shares.
• An accountant or tax adviser can test financial adjustments, relief conditions and reporting requirements.
• A valuation specialist can provide the independent market opinion.

Coordinated valuation, legal and financial advice reduces the risk of double counting, missing assets, claiming unavailable relief or using hindsight. It can also identify practical issues, such as funding tax, retaining management and protecting business continuity. Begin the process promptly and update plans after major changes in ownership, profitability, assets or legislation.

In summary, an accurate business valuation for Inheritance Tax purposes combines sound financial analysis with commercial judgment. It starts with reliable accounts, replaces book figures with realistic market values where necessary, recognises goodwill and other intangible assets, and tests the result against comparable transactions and prospects. Business Relief may substantially reduce the taxable value, but only after the full value and eligibility have been established.

Clear documentation and early professional legal and financial advice give executors and business owners the strongest basis for a fair, supportable figure. HM3 Legal provides comprehensive legal support across all the areas outlined above, including for Business Wills. Our team works closely with other professional services experts, including financial advisers and valuers, on behalf of clients looking to value a business for inheritance tax purposes.