What Is Property Valuation for Probate?
Property valuation for probate is the value of the deceased person’s property at the time of their death. More specifically, it is the amount the property is likely to sell for if it was listed for sale on the open market.
Purpose Of Property Valuation for Probate
When a property forms part of the estate the property valuation is a key part of probate as assets cannot be distributed until the value of the estate is known. A very important part of the probate process is to establish if there is any inheritance tax payable on the deceased’s estate. In order to work this out, the personal representative(s) who administer the estate need to have the assets of the estate valued.
Valuing The Estate for Inheritance Tax
The entire estate of someone who has recently died, not just the value of the probate property, needs to be valued to establish if inheritance tax is owed. The estate includes property, possessions and money – everything the deceased individual owned, including debts.
The first step is to establish what’s included in the estate and then the value of each asset or debt at the time of the person’s death needs to be ascertained. This information is the basis for an estimated value of the estate which is used to calculate the amount of inheritance tax payable.
Estate valuation, Inheritance Tax and HMRC
Valuing the probate property and the rest of the estate can take months, depending on the size and complexity of the estate. The probate property cannot be sold until the Grant of Probate or Letters of Administration have been issued, since these documents provide the personal representatives with the legal right to deal with the estate – including the sale of the property. However, Grant of Probate or Letters of Administration cannot be issued until inheritance tax has been paid, which can be problematic if the money to pay Inheritance Tax is tied up in the probate property – often the most valuable asset in the estate. We take a closer look at this situation in the article, “Do you have to pay inheritance tax before probate?”
There are times when the full details of the estate must be sent to HMRC even if no inheritance tax is due. Seek advice from one of our specialist probate solicitors for confirmation on whether tax is due on the estate you’re administering if you’re unsure.
What happens if the house sold for more than the estimated probate property value?
If the property is sold for more than the estimated probate property value, HMRC will increase the inheritance tax amount that is owed. In addition, Capital Gains Tax may be owed on the increase in house value between when the person died and when the property was sold.
How about if the house sold for less than probate value?
If the property is sold for less than the probate value, HMRC might refund some of the inheritance tax that the estate has paid. However, this only applies if the property is sold within four years of the person’s death, and you should speak to a probate solicitor before making an inheritance tax refund claim as the process is complicated.
Who Should Carry Out the Valuation?
It’s important to obtain an accurate property valuation for a probate property to avoid any complications with HMRC further along the process. Personal representatives must take ‘reasonable care’ to complete the valuations for Inheritance Tax accurately. If the information supplied is inaccurate and the inaccuracy results in tax being underpaid, HMRC may impose penalties.
RICS property surveyor – the Red Book valuation
Known as the Red Book valuation, it is recommended that you use a professional member of RICS, the Royal Institute of Chartered Surveyors, to carry out the property valuation for probate because it is the most accurate. Based on a thorough investigation, using a RICS property surveyor for the valuation is particularly helpful if the estate is near or above the inheritance tax threshold. You can refer HMRC to the surveyor if they dispute the valuation you provide on the tax forms. This reduces one of the risks of being an administrator or executor.
The downside to using a RICS property surveyor is it’s more expensive than alternative options and the price tends to be based on the complexity of the property valuation.
Estate agent
This option is free, and your local estate agent will provide a property valuation based on current market values. To improve the accuracy of the valuation, it’s a good idea to get at least three valuations from different agents and use the average of the three valuations for HMRC.
Estimate the Property Value for Probate
You might choose to provide the property value yourself if you have an idea of the value to begin with. Use a search of the property on Zoopla together with price comparisons of similar houses in the local area, to establish an estimate. However, this method is risky. Without the backing of a property professional the likelihood of the valuation being queried by HMRC increases. A property professional will understand the factors that impact on a property valuation.
Factors That Impact Property Valuation
There are many factors influencing the property valuation for probate, including:
- Size and location – the size of a house is important as people value the amount of usable space and square footage a property has as well as bedroom and bathroom numbers. Location is key and many buyers prioritise this over the property itself, so being in a desirable area can add a significant amount to the property valuation.
- Special features – if there is something that makes the house stand out and be unique, this will likely push the valuation higher as people are willing to pay more for a house that is unlike the others in the area, perhaps because it has a large swimming pool or an annexe in the garden.
- Comparable properties – the neighbouring properties matter as if they are all smart and in good order, this will help to keep prices in the whole area higher.
- Condition of the property – if the house is in a good condition and has been kept well, this will positively influence its valuation. As well as the inside of the property, having a house with curb appeal boosts its value. Also, if the house has the potential for buyers to improve or extend, this will increase the property’s value as people like to be able to add value if they can.
Take Advice when it comes to Property Valuation for Probate
When a property is involved in the probate process it’s safer to take professional advice. This is particularly important when the probate property is near to or exceeds the Inheritance Tax thresholds. It’s a complex area and Personal Representatives can be held personally liable for mistakes.
