Probate Valuation: Property & Contents
The affairs that you need to deal with following the death of a family member or friend can be overwhelming. One such task is the valuation process for the estate, which is necessary for the probate process and application.
Estate valuation is an essential step that will require your attention. Fortunately, we are here to walk you through the valuation process step-by-step with a special focus on probate property valuation. We want to ensure that you end up choosing the right house survey for valuation purposes.
So, let’s answer some of the pressing questions you may have.
Why and When You Need Estate Valuation
This process takes place after someone has died. The aim of valuating their estate is to determine the value of all their assets, liquid or fixed, including any property.
Any outstanding payments or debts receive a negative value and the difference is considered the final estimate.
You need a professional valuation for estates with a gross value exceeding £325,000. If the value of the estate falls significantly below this amount, then estimates should be adequate.
If the deceased’s contents such as art, antiques, jewellery and other chattels are estimated to be over £1,500 in value you will need these accurately valued by a qualified professional valuer.
When property ownership is involved, it is necessary to determine the “market value,” also known as the open market value or OMV. This is the amount that the property is expected to sell for on the open market.
Valuation needs to take place before the probate office can issue a Grant of Probate. If the estate includes a property for probate valuation, this is referred to as “probate property”
A grant is required before the assets of a deceased person can be allocated to beneficiaries as instructed in the Will.
If circumstances result in the deceased dying intestate (no Will present), all assets in the estate pass on to the next of kin. This also requires a Letter of Administration from the probate registry office.
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Who Is Responsible for Commissioning Professional Valuation Advice?
Generally, the Personal Representatives of the deceased individual is responsible for the probate valuation. This can be the executor of the Will or the administrator of the estate. However, a full valuation can become very complex very quickly and you will likely feel overwhelmed.
Fortunately, you can contact a professional firm such as ours that specializes in inheritance tax purposes for more information and assistance. We will be able to organise the probate valuations of the property and contents.
Who Can Provide Probate Valuation?
In terms of property valuation for probate, you can either approach local estate agents or RICS property surveyors. We will compare both options below so that you can make the right choice.
Valuation From Your Local Estate Agent
If you wish to sell the property included in the deceased’s estate, your estate agent will provide you with a free house valuation service. An estate agent cannot provide formal valuations.
If the value of the house brings the net estate worth near to or above the inheritance tax threshold (IHT), also known as the Nil Rate Band, you should without the doubt obtain a formal probate valuation from Erikas Grig Chartered Surveyors.
This will improve the accuracy of the house valuation you present to the HM Revenue and Customs (HMRC) probate registry, as you can present an average of the three as the final probate property valuation.
The downside of using estate agents is that they often inflate the value of the property. They will usually provide you with an estimated “asking price”. This is the value they would place your house on the market for, rather than its open market valuation.
For this reason, agent valuations are less accurate and three different agents can present you with highly variable values. This means you could end up overpaying inheritance tax or it might not look good to the HMRC, which could challenge the valuation.
When this happens, you should consider approaching us for advice. Our services are fee based, however, by instructing us you will protect your position and fulfil your legal duties as administrator or executor of the estate.
Valuation From an RICS Property Surveyor
To present as convincing a case as possible to the HMRC, you should approach an RICS qualified property surveyor. Unlike estate agent valuation, this service will cost you. But, if your estate is close to or above the inheritance tax threshold, or nil rate band, it could very well be worth your while!
The HMRC might still challenge you if they believe your house to be undervalued. This is highly likely if you place the property on the market for significantly more than your submitted value and you have not obtained professional advice from a qualified property surveyor.
If the HMRC challenges you, approaching our team will be your best move as an RICS valuation holds more weight in challenge cases.
A formal valuation by a chartered surveyor is also your best bet if the house in question
- Doesn’t fit the mould of a “standard design”
- Has great potential for development i.e. a high “development value”
- Is especially run down and in need of renovations
- Exceeds the value of £325,000
There are also many things to take into consideration when conducting a valuation of house and contents. Experienced chartered surveyors, like Erikas Grig, know exactly what to look for and can help you reduce your inheritance tax liability. We will ensure that everything is appraised correctly to eliminate the risk of any HMRC financial penalties.
Timelines for Submitting Valuation of the Estate
If you suspect that the estate falls within the inheritance tax band, you should note the following deadlines:
- You need to complete and submit inheritance tax forms to the HMRC within one year following the deceased’s death.
- You need to start paying tax on the estate at the end of the sixth month following the person’s death.
Payments can commence before a full valuation has been made. If your estimates undervalue the estate, you will have to pay more in the future.
The inspection of the property for probate valuation purposes can take between 30 minutes and 2 hours. The inspection in most cases is necessary to allow the surveyor to draw up a detailed report. We generally take about one week to complete this report, although this differs based on the property size, type and number of property assets.
Some of the Executors elect to use the estate agent route which sometimes can be quicker. However, as mentioned, the agent will only issue a cover letter with their opinion without any substantiation. As a result of this, HMRC generally does not take it into account. Obtaining estate agent valuation will increase the chance of your submitted property value being disputed by the HMRC.
The valuation of the entire estate, over and above determining the value, is what takes the most time. If it contains lots of taxable contents and property that require a valuation, be sure to factor in this time-consuming process in light of the important deadlines listed above.
This step is independent of the property valuation for probate and you would usually have to contact multiple organisations for valuation details. Fortunately, our company has qualified valuers with long-standing experience valuing personal possessions.
The first step is to draw up a list of all valuable assets. A completed Will should include an asset inventory that you can refer to for this.
Make sure that your list includes all contents listed in this inventory and include any items overlooked by the deceased.
If no contents inventory exists, you will have to delve into paperwork and contact all financial institutions affiliated with the deceased.
Assets that should be included in estate valuations include:
- Bank accounts
- Savings accounts
- Stocks and shares
- Insurance cover/documents
- Valuable household contents
- Businesses owned
- Foreign assets
- Trust assets
- Valuable gifts received in the last seven years
Once you have compiled the list, you will need professional advice to determine the market value of each asset and debt.
For most contents, their market value will be less than what it would take to replace the item. The replacement value usually reflects an item’s insurance value, not the open market value.
HMRC Penalties for Incorrect Estate Valuations
Between 2011 and 2012, the HMRC made £88 million from the challenging of property valuations. Paying extra inheritance tax due to inaccurate valuations can come as a huge blow.
It is your duty, as the executor or administrator, to ensure that probate valuations are accurate. This is why it is so important to employ the services of experienced and qualified professionals to determine the value of the estate. The HMRC rarely questions chartered surveyor valuations due to consistent levels of expertise.
Estate agent’s market appraisal, on the other hand, can vary hugely. Valuations from agents are often sent to District Valuers by HMRC and can be often challenged due to lack of evidence and value variation.
Also, be sure to watch out for unqualified probate valuers advertising their services on the internet. Double-check that they are linked to an accredited institution such as RICS or your valuation will be disputed!
Avoid house clearance companies offering probate services. They do not have the required qualifications and their interest in the items may influence their valuations. This conflict of interest will attract the attention of the HMRC and draw out the entire ordeal.
Disputes from the HMRC can lead to costly legal fees and a drawn-out probate process that can cause unnecessary frustration for grieving loved ones.
If the Selling Price of the House is More Than the Probate Value
A higher sale price often results in the HMRC increasing the owed inheritance tax, especially if the sale takes place soon after probate is granted.
This can be frustrating for executors that have followed all the necessary steps and been awarded a grant.
You can challenge these increases and negotiate with the District Valuer. However, this is often very time-consuming and frustrating. We can negotiate on your behalf and work out arrangements directly with District Valuer appointed to manage your case.
In addition, you might be liable for Capital Gains Tax if you sell the property for more than its probate valuation. Capital Gains Tax is calculated on the increase since the deceased’s date of death and is only charged when the property is sold.
Contact Us at Erikas Grig Surveyors
Our team at Erikas Grig Chartered Surveyors are expert valuers of property and contents for Probate purposes. So, get in touch with us today to obtain a professional valuation. Our experienced valuers will be able to inspect and value your property and contents accurately to ensure you remain compliant with HMRC guidelines and Inheritance Tax Act throughout this process.