When someone dies, their “estate” is everything they owned at the moment of death. Understanding what counts as part of an estate matters for the following reasons:  

  • Understanding what you may give away – both in a will and in your lifetime,  
  • Sorting out your affairs after death, and  
  • Calculating any inheritance tax due. 

At its simplest, your estate is everything you own at the time of your death. This includes: 

  • Land and Buildings 
  • Money: cash, bank and building society holdings,  
  • Investments: shares, bonds, unit trusts, ISAs  
  • Life Insurance Policies 
  • Pensions and Death in Service Benefits  
  • Personal belongings: vehicles, household belongings, jewellery, art 
  • Business interests  
  • Digital assets: cryptocurrency 
  • Debt: unpaid income, money and other assets owed to you by people or organisations e.g. money lent to a friend or relative to buy a house 

But your estate also includes what you owe: 

  • Debts: mortgages, loans, outstanding bills   

Your net estate (what’s left after paying debts, costs and taxes) is what gets distributed to your beneficiaries. 

How Ownership Affects Your Estate 

Not everything you own may pass by your will. How you own something determines what happens to it when you die. 

Solely Owned Assets 

Assets you own outright belong to you. You may give them away or sell them. They may pass according to your will, or if you died without a will, according to the rules of intestacy. 

A house in your sole name, your personal bank account, your car, and your personal possessions all fall into this category. 

One note on valuation: for estate planning, you should use the realistic open market value of your possessions, not the replacement value. For example, contents of an average home might cost £50,000 to replace (the insurance value) but would only fetch a few thousand pounds at a car boot sale or auction. This difference matters when dividing your assets and calculating tax. 

Jointly Owned Assets: Two Different Types 

When you own an asset with another person, your share of the asset may be inherited in two possible ways. 

Joint Tenancy (Automatic Inheritance) 

With joint tenancy, when one owner dies, irrespective of the provisions in the deceased’s will, the survivors would automatically get the entire asset. This is called the “right of survivorship.” 

Marcus and his wife Lisa own their house as joint tenants. When Marcus dies, Lisa will automatically own the whole house, irrespective of Marcus’s will. This arrangement is common when two people buy a house or hold a bank account together. 

For inheritance planning purposes, only your share (typically 50%) of jointly owned assets counts as part of your estate, even though the whole asset passes to the survivor. 

Tenants in Common (Will Controls Inheritance) 

With tenants in common, each person owns a specific share of the asset. They can leave that share as they please in their will. If there were no will, that share would pass by the rules of intestacy.  

Sarah and her brother David owned an investment flat together as tenants in common. Sarah owned 60%, David 40%. When David died, his will left his share to his daughter. Sarah still owns her 60% but now owns the property with David’s daughter. Depending on the rest of David’s arrangements, the inheritance tax liability might be attributable to David’s daughter’s inheritance of 40% of the flat. 

This arrangement enables joint owners to leave their shares of assets as they wish rather than to their co-owners. Owning assets as tenants in common is therefore a foundational inheritance tax planning tool. 

Trust Assets You Benefit From 

A trust is a legal arrangement to manage assets (cash, investments, land or buildings) on behalf of beneficiaries, including relatives. 

Assets can include: 

  • a property they had a right to live in or collect rental income 
  • shares that provided regular payments or dividends 

Lifetime Gifts: The Seven-Year Rule 

Gifts made more than seven years before death are generally outside your estate for inheritance tax. Gifts made within seven years of death get brought back into the estate calculation, with tax charged on a sliding scale: 

  • 0-3 years before death: 40% tax 
  • 3-4 years before death: 32% tax 
  • 4-5 years before death: 24% tax 
  • 5-6 years before death: 16% tax 
  • 6-7 years before death: 8% tax 
  • More than 7 years: No tax 

Gifts with Reservation of Benefit (GWROB) 

This is where people give assets away but keep using them. For the purpose of inheritance tax, this gift would remain in your estate. 

For example: your father gave you his house but continued to live in the building. By inheritance tax rules he is retaining the benefit of ownership. In the jargon, he would be reserving the benefit of ownership. Therefore, the house would remain in his estate. 

To remove the house from his estate, your father must either move out of the building or pay rent at the full market value. In any event, your father must survive the gift by seven years for the house to be out of his estate for inheritance tax. 

There are exemptions to this rule – the exemption is outside the scope of this article – you may get specialist inheritance tax advice here. 

Conclusion 

Understanding the components of an estate is the foundation for writing your will so you can distribute your assets as you wish, plan for inheritance tax, and administer an estate after someone dies. 

If your estate is straightforward (one person owns everything outright, no trusts, no complex gifts), calculating its value is relatively simple. If you have jointly owned property, trusts, or have made substantial gifts in recent years, the tax calculation becomes more involved. In these situations, consider getting professional advice from a tax specialist.