Probate property makes up an important part of the residential market. In 2017-18, the most recent year for which data is available, inheritance tax forms were completed for 277,000 estates, of which 208,000 (or three-quarters) included residential buildings. The total value of this property was more than £51 billion.
In order for HMRC to correctly calculate any inheritance tax that may be due on the estate, the value of assets, including residential property must be reported before probate can be granted. If HMRC believes the value of the estate has been misrepresented then it can open an inheritance tax investigation. It’s vital, therefore, for residential property that forms part of the estate to be accurately valued.
For many properties, HMRC will be happy to accept an informal valuation carried out by an experienced local estate agent, but it is important that this valuation is accurate and can be readily justified, to reduce the chance of investigations which can cause delay and additional expense in the settlement of the estate.
The valuation you provide for probate purposes should, most importantly, reflect the actual value which the property could fetch on the open market, and should not be either an inflated “suggested listing price” or a conservatively low “probate valuation”.
Section 160 of the Inheritance Tax Act 1984 states that:
“...the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.”
Essentially this means the value the property might reasonably fetch if it was sold on the open market to a willing buyer on the date of transfer. Usually, the transfer date is the date of death, but if the deceased person gave the property away as a gift within the previous seven years, then the transfer date is the date the gift was given.
In short, the value should be assessed using these assumptions:
It may be that the property could attract a “special purchaser”, who is willing to pay more than the market value because they have a particular interest in the property. An example of this could be a tenant who might wish to purchase their home. If this is the case, official guidance states that your valuation should take this into account, provided that the special purchaser can reasonably be shown to have been able and willing to purchase at the date of valuation, and that their existence can reasonably be supposed to have been known to the ‘market’ at large.
Other factors to consider:
More specific guidance for valuation can be found in Section 7 of the Inheritance Tax Manual from the Valuation Office Agency.
The valuation you provide will form part of our the probate valuation which we supply to our clients, along with a recommended marketing proposal should they wish to sell the property.
To ensure we provide them with the most accurate information, your valuation should: