For most estates, the family home is the single most valuable asset, which makes getting its value right one of the more important tasks an executor faces. A probate house valuation is the figure placed on a property as at the date of death, and it is used to apply for the grant, to work out any inheritance tax, and as the baseline against which a later sale is measured. In this article, our specialist wills and probate team explores the topic ‘Probate house valuation: how should property be valued?’ to give you an insight into this complex area.
To speak to our experts, please call us free of charge on 0800 988 3674 or Make A Free Online Enquiry.
Why Is The Probate House Valuation So Important?
The value placed on a property affects several things at once. It impacts the total value of the estate, which determines whether inheritance tax is due and how much. It also forms part of the information reported to HM Revenue and Customs and the Probate Registry, and it becomes the figure against which any gain or loss on a later sale is measured for capital gains tax purposes.
Because property is usually the largest asset and the one most likely to be scrutinised, an inaccurate figure here has a greater effect than almost anywhere else in the estate.
How Is Property Valued For Probate?
What is needed is the open market value at the date of death. In other words, the price the property would reasonably have been expected to fetch if sold on the open market at that time, between a willing seller and a willing buyer.
This is not the same as an insurance valuation, which reflects rebuilding cost, nor is it an aspirational asking price. It is a realistic assessment of what the property was worth on the day the person died, taking account of its actual condition and the state of the local market at that time.
How Is A Probate House Valuation Carried Out?
There are two broad approaches to probate house valuations, and the right one depends on the estate.
For a modest estate that clearly falls well below the inheritance tax threshold, obtaining written valuations from two or three local estate agents is often sufficient. Taking more than one and using a sensible average helps arrive at a defensible figure and shows that the executor has approached the task properly.
Where inheritance tax is likely to be payable, or the estate is close to the threshold, the safer course is to instruct a chartered surveyor to prepare a formal written valuation specifically for probate purposes, often described as a Red Book valuation. This is a professional assessment prepared to a recognised standard, and it carries considerably more weight if the figure is later examined.
Why Does HM Revenue And Customs Scrutinise Property Values?
Property valuations matter to HM Revenue and Customs because they have a direct effect on the amount of inheritance tax due. Where tax is payable, HMRC can refer a valuation to the District Valuer, a professional who assesses whether the figure used is realistic.
If the District Valuer considers the figure too low, the value can be increased, resulting in more tax, and potentially in interest and penalties where the original figure is regarded as having been carelessly low. A professional valuation obtained at the outset gives the executor a sound basis for the figure used and reduces the risk of a challenge. It is far easier to justify a properly prepared valuation than to defend a rough estimate after the event.
What Happens If The Property Sells For A Different Amount?
Property values can move between the date of death and the point of sale, and the difference can have tax consequences. If a property is sold within a certain period after death for less than its probate value, it may be possible to claim relief and recover some of the inheritance tax paid.
Conversely, if the property sells for more than its probate value, the gain may be subject to capital gains tax, with the probate value serving as the starting point for the calculation. Estates do have an annual capital gains allowance, but where the increase is significant, tax may be due.
What Factors Affect A Property’s Value?
A proper valuation looks takes account of the size and layout of the property, its condition and any need for repair or modernisation, its location, and any features that add or detract from value. The state of the local market at the date of death is also relevant, since values rise and fall over time.
Particular circumstances can affect the figure too, such as a short lease on a leasehold property, a shared ownership arrangement, or the property being tenanted. These are exactly the sort of factors a professional valuer is equipped to weigh, and getting them wrong can distort the value considerably.
How can Bartletts Solicitors help?
Valuing a property correctly is central to administering an estate properly, and mistakes can be costly. Our wills and probate team can advise you on the level of valuation appropriate to the estate, help you instruct a suitable surveyor where a formal valuation is needed, and make sure the figure is correctly reported to HM Revenue and Customs and the Probate Registry. Where reliefs may be available on a later sale, we can advise on those too.
Our probate charges are based on the time actually spent on your matter, at a rate that will not exceed £250 per hour plus VAT, and our fee will not exceed 2 per cent of the gross value of the estate, with our proposed fee always sent for your approval before we proceed.
To speak to our experts please call us free of charge on 0800 988 3674 or Make A Free Online Enquiry.
