Why Value an Estate?
Before applying for probate, whether for a grant of probate in the presence of a will or a grant of letters of administration in the absence of a will, it is essential to determine the value of the estate. This valuation is necessary for Her Majesty’s Revenue and Customs (HMRC) to assess whether any inheritance tax is due.
To ascertain the estate’s value, you must identify all assets, possessions, and liabilities (such as loans and outstanding bills) belonging to the deceased. The sum of all assets constitutes the gross estate value, and deducting the total liabilities yields the net value.
By accurately estimating the estate’s value, you ensure proper payment of taxes and debts, as well as the correct distribution of assets. This valuation is crucial for completing the inheritance tax forms required to obtain probate, which cannot be finalised until the estate’s worth is determined.
How To Value an Estate for Probate
Identify the Assets
All assets owned by the deceased, whether solely or jointly, must be identified. This includes any amounts owed to the deceased, such as unpaid salary or bonuses.
Common assets typically considered for probate include:
- Funds held in bank accounts
- Personal possessions, such as vehicles, jewellery, and artwork
- Real estate properties
- Business assets
- Investments in stocks and shares
By thoroughly identifying these assets, you ensure a comprehensive assessment of the estate’s value, which is crucial for probate proceedings and distribution of assets.
Identify Liabilities
It is important to establish all the debt liabilities of the deceased, including:
- Loans
- Mortgages
- Utility bills
- Credit card debts
By identifying these liabilities, you can accurately assess the total debts owed by the estate, which is essential for probate and estate settlement purposes.
Identify Lifetime Gifts
These are gifts of property or possessions valued at over £3,000 that the deceased gave to family members or friends within the 7 years before their death. Gifts made more than 7 years before the deceased’s death are typically exempt from inheritance tax.
By identifying such gifts, you can assess their potential impact on inheritance tax liability for the estate during probate proceedings.
Calculate the Value
All assets owned by the deceased must be valued at their open market price, representing the amount each asset would fetch if sold on the open market at the time of death.
For lifetime gifts, the valuation depends on whether the recipient continued to benefit from the gift after receiving it. If the gifted item provided ongoing benefit (such as living in a gifted property or renting it out), its value should be assessed at the time of the deceased’s death.
To determine the net worth of the deceased’s estate, combine the total value of assets and lifetime gifts, then subtract any liabilities (debts and obligations). This calculation provides the estate’s net value for probate and inheritance tax purposes.
Valuation Methods
To determine the value of the estate, the first step is to compile an inventory listing all assets, debts, and lifetime gifts made by the deceased within the 7 years preceding their death.
Compiling this list can be complex, depending on the nature of the deceased’s assets and liabilities. If you encounter difficulties, consider hiring a probate specialist to assist with this task.
Accurate valuation is crucial, as administrators and executors may be held personally liable for errors. If unsure, seek professional advice.
Start by reviewing the deceased’s paperwork thoroughly to ensure no assets or debts are overlooked. Consult with family members, friends, and the deceased’s accountant or solicitor, if applicable.
Next, contact relevant organisations to confirm the value of each asset or debt at the time of death. These may include:
- Banks and building societies
- Employer
- Pension provider
- Investment firms
- Trustees of any held assets
- Life insurance companies
- Recipients of lifetime gifts
For liabilities, contact organisations such as:
- Banks or mortgage providers
- Utility companies
- Local council
- Loan companies
- Funeral home
- Care homes where the deceased received care
Depending on the type of debt, you may negotiate a settlement amount with creditors up to the date of death to halt further interest accrual. However, this may not always be feasible, and certain liabilities may continue to accumulate interest.
Additionally, establish the value of personal possessions such as property, jewellery, and artwork owned by the deceased.
By conducting a thorough inventory and valuation, you ensure an accurate assessment of the estate’s worth for probate and legal purposes.
Valuing Property For Probate
For an accurate valuation of probate property, it is advisable to engage a chartered surveyor qualified by the Royal Institution of Chartered Surveyors (RICS). Surveyors possess expertise in providing valuations specifically for inheritance tax purposes.
Obtaining a valuation from a RICS-qualified surveyor increases the likelihood of HM Revenue and Customs (HMRC) accepting the valuation without requesting additional evidence to support it. This helps streamline the probate process and ensures compliance with tax requirements.
Valuing Possessions For Probate
When valuing the contents of the property and the deceased’s possessions, begin by listing items that are likely to hold significant value, such as cars, artwork, furniture, jewellery, antiques, and high-end electronics.
For unusual or high-value items, it is advisable to enlist the expertise of a professional valuer. For other items, you can use online resources to establish their worth.
Alternatively, consider engaging a valuation company to assess all possessions. Although this method incurs a fee, it is more likely to be accepted by HM Revenue and Customs (HMRC), making it worthwhile if you are uncertain about the value of certain possessions. This approach helps ensure compliance with tax requirements during the probate process.
The Importance of an Accurate Valuation
Valuation for Inheritance Tax
The valuation of all assets must reflect their realistic selling price on the open market at the time of death. This differs from the original purchase price, as items may have depreciated or become less desirable over time.
Personal representatives bear the responsibility of ensuring accurate valuations. For high-value items, it is advisable to engage an independent professional to provide valuations rather than estimating or providing inaccurate amounts.
Accurate estate valuation for probate minimises the risk of HM Revenue and Customs (HMRC) disputing the valuations submitted. This saves time and money and alleviates stress during the probate process, which can be lengthy.
Regardless of whether Inheritance Tax is payable, it is crucial to value all assets and liabilities accurately for submission to HMRC. Incorrect valuations can lead to complications later on. Underpaid Inheritance Tax must be settled before estate distribution to beneficiaries, or personal representatives may be held liable for any errors made.
Valuation for Capital Gains Tax
Accurate valuations are also crucial for determining Capital Gains Tax liabilities when valuing an estate for probate. Any property or assets sold during probate that have appreciated in value since the date of death may be subject to Capital Gains Tax.
Beneficiaries inherit assets at their probate value. When they eventually sell these assets, they will be required to pay Capital Gains Tax on the increase in value from the date of death to the date of sale. This is especially relevant for property, which is typically the highest-value asset.
Inheritance Tax Threshold and Additional Allowance
Every estate is entitled to a tax-free allowance, and assets below this threshold are not subject to Inheritance Tax. The current threshold stands at £325,000.
Furthermore, the tax-free allowance can be increased by an additional £175,000 if the deceased passes their primary residence to their children or grandchildren. This additional allowance aims to provide relief for families inheriting residential property.
Submit The Valuation To HMRC
Completing Probate Forms
To proceed with probate, you must complete the appropriate probate forms, which vary depending on whether Inheritance Tax is payable.
Inheritance Tax is not applicable if:
- The estate is valued at less than £325,000 (£500,000 if a property is passed to children or grandchildren).
- The estate is passing to the deceased’s spouse or civil partner.
- The estate is going to a charity or a community amateur sports club.
However, certain circumstances require sending detailed information to HM Revenue and Customs (HMRC) even if no tax is owed. These circumstances include:
- The deceased gifted more than £250,000 within 7 years before death, or the estate includes trusts.
- Gifts were given with continued benefit to the donor (e.g., gifting a property but continuing to live in it).
- The estate’s value exceeds £3 million.
- The estate includes foreign assets valued over £100,000.
- The estate includes trusts.
Ensuring the correct probate forms are completed and relevant information is provided to HMRC is essential for efficient estate administration and compliance with tax regulations.
If probate isn’t needed, you don’t need to report the value of the estate to HMRC.
Estate valuation is a critical aspect that requires precision and, ideally, professional guidance. Submitting an accurate estate valuation report based on professional advice enhances the likelihood of HM Revenue and Customs (HMRC) accepting the valuations without requesting additional evidence.
This approach minimises delays in the probate process and ensures that all debts, including inheritance tax and capital gain tax, are properly settled. Accurate valuation also facilitates the correct distribution of assets to beneficiaries, contributing to a smooth and efficient estate administration.
