When somebody dies, probate must be granted so that the estate can be divided among beneficiaries in accordance with their will. However, before this can happen, the value of property, assets and belongings that form the estate, together with any debts or liabilities, must be calculated and reported to HMRC.
Depending on the value of the estate, there may be inheritance tax to pay. If HMRC's district valuer believes the value has been misrepresented then it can open an inheritance tax investigation. For many estates, a residential property will be the single largest asset – but unlike a bank account or shares, it does not have a simple fixed value. Therefore, it is vital that probate property valuation is carried out correctly.
Here's our guide to what you need to know.
The “personal representatives” of the deceased person are responsible for calculating the value of their assets, including residential property, for probate. Usually the personal representatives will be one or more executors named in the will, but if there is no executor then an administrator will be appointed. The executor(s) may be beneficiaries of the will, or third parties such as solicitors.
For probate purposes, this is defined as 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. (If the property was gifted but the previous owner continued to benefit from it, i.e. live in it rent-free, then it will be treated as though it was still part of the estate.)
HMRC’s guidance states that you should obtain a professional valuation for any assets worth more than £1,500, unless the gross value of the estate is less than £250,000, or the entire estate is passing to a spouse or civil partner, in which case an estimated value can be used. In practice this will mean the services of an estate agent or a professional surveyor are usually required.
Local agents for low value, simple properties
In many cases, especially lower-value properties and estates where inheritance tax is unlikely to be payable, an estate agent’s informal valuation will be sufficient. This is likely to be free or at minimal cost, as the agent will be looking to take on the marketing of the property; some estate agents will charge a fee but offer to refund it if they subsequently sell the property. Obtaining valuations from more than one agent is a good idea: widely differing opinions may mean a professional valuation by a surveyor is required. The wording of the valuation is important: the agent should make it clear that this is an expected fair market value, rather than a “valuation for probate purposes”. You should also ensure that the agent isn’t providing an inflated asking price, which they would expect to knock down to a lower selling figure.
RICS valuation for higher value or complex properties
For more expensive or unusual properties, and where it is anticipated that the estate will be liable to inheritance tax, it may be wise to obtain a formal valuation from a surveyor who is a member of The Royal Institution of Chartered Surveyors (RICS). RICS issues a set of standards for valuation known as the Red Book, and a “Red Book valuation” is much less likely to be challenged by HMRC than an estate agent’s estimate. However, a surveyor will charge a fee for this service, which will vary by location and size of property but is likely to be at least £250 +VAT. A Red Book valuation is also recommended where the property is not a straightforward residential property, for example a farm, business premises or land with development value. HMRC investigated one quarter of estates in 2019-20 where IHT was due and if yours is challenged the cost of solicitor time (and hassle) dealing with the challenge is likely to outweigh the cost of the Red Book valuation so we would recommend you get one.
A probate valuation should consider any factors which could affect the market value:
Whether you require a valuation from local estate agents or a Red Book valuation from a qualified chartered surveyor, we can arrange it and ensure its completed and presented in the correct manner.