Valuing an estate for probate

When a loved one passes away, there are numerous legal matters to address during the probate process. One crucial task is valuing their estate. But what exactly constitutes a person's estate?

Why is an official valuation necessary? And who is responsible for this valuation? Find all the answers in our comprehensive guide.

Do I need an official house valuation for probate?

Getting an official house valuation for probate is essential. The deceased's properties, along with money in banks, life insurance payouts and other belongings, make up the estate's total value. You need to know this total value to apply for probate, as it affects whether Inheritance Tax is due and how much.

You need a valuation on the date of death to calculate Capital Gains Tax if any assets, including properties, have increased in value since then. An official valuation also ensures all debts are paid and the estate is properly distributed to the beneficiaries named in the Will.

Who can carry out a probate estate valuation?

Chartered surveyors, especially those qualified by the Royal Institution of Chartered Surveyors (RICS), are the best choice for valuing property in an estate for probate. They have the experience needed for Inheritance Tax valuations, making it more likely that HMRC will approve their assessments. While you might consider using a local estate agent, they often lack the specialised knowledge required for Inheritance Tax valuations.

Once you submit a valuation, the District Valuer Services (DVS) of HMRC might review it to ensure it's accurate. If they find any issues or think the valuation is incorrect, they can challenge it. This could potentially result in financial penalties. You can value household items and personal belongings worth less than £500 yourself. For money in the bank or business assets, it's best to contact the relevant organisations for accurate valuations.

What impacts the estate value?

Many things can affect the value of a person's estate. A big part of this value comes from what they owned, called their assets, which are valued at their market price when they die. This includes things like:

• Property or land (including shares, like 50% of a house)
• Money in bank accounts
• Personal items (like jewellery, cars, heirlooms)
• Business assets
  
  

These assets' value is reduced by any debts that need to be paid, such as mortgages, taxes, credit cards, and lifetime gifts – the value of the gift will be from the date it was given.

Since this process is complex, it's a good idea to get help from a probate solicitor.

Valuing an estate for Inheritance Tax

Understanding the value of an estate is crucial for Inheritance Tax (IHT). The total value of the estate determines if IHT needs to be paid. Currently, estates have a tax-free allowance of £325,000.

If the estate is worth more than this, IHT must be paid on the amount above the threshold. If the deceased is leaving their home to their children or grandchildren, the tax-free allowance can increase by £175,000, making it £500,000 in total. This is due to the residence nil rate band.

For more details, check out our comprehensive guide to Inheritance Tax.

What if the estate sells for more than the valuation?

If you sell a property from someone's estate for more than its value at the time of their death, it can cause some issues. First, you need to tell HMRC the actual selling price because they might increase the Inheritance Tax you owe. You might also have to pay Capital Gains Tax (CGT).

CGT is based on the profit from selling the property, which is the difference between its value at death and the sale price. An Inheritance Tax accountant can help you calculate CGT and advise you on any possible deductions and allowances.