Valuing an Estate for Probate
22 August 2018
When applying for Probate, you'll need to value everything the deceased person owned, which is known collectively as their 'Estate'.
Why Does an Estate Need to be Valued?
One reason why an Estate needs to be valued during Probate is to work out whether or not Inheritance Tax is due. In England and Wales, Inheritance Tax (IHT) must be paid if the total value of the deceased person's Estate is worth more than £325,000 (currently). The Inheritance Tax threshold may be higher if the deceased was a widow/widower.
Even if you are absolutely certain that Inheritance Tax is not due, you must still value the Estate, as it has to be reported to HM Revenue and Customs (HMRC).
When to Value an Estate for Probate
When going through the Probate process, valuing an Estate will be one of the first things that you will need to do. This is because you cannot obtain a Grant of Probate (or Grant of Letters of Administration, if there is no Will) until you have completed the Inheritance Tax forms.
If Inheritance Tax is payable, then you will need to start paying it at the end of the sixth month after the person died. As it can take many months to value an Estate, it is best not to delay. In some situations you will have to start paying tax before you've even finished valuing the Estate.
How to Value an Estate for Probate
To begin with, you need to make a list of all the deceased's assets, debts, and any non-tax exempt gifts that were made seven years before their death. You won't necessarily know all this information, so it may take a little or a lot of detective work. If you prefer, a Probate Solicitor can do this for you.
With our Probate Complete Service we take full responsibility for obtaining Grant of Probate and dealing with the Legal, Tax (not VAT), Property and Estate Administration affairs*.
Start by going through the deceased person's paperwork. It's also a good idea to ask their family members, friends and any professionals the deceased used such as an Accountant and Solicitor. You will need to prove that you have the legal authority to request and receive any confidential information.
Then write to all the organisations you discover, asking for the value of the deceased's asset or debt. Include a copy of the death certificate in each letter.
The organisations and people you might write to in order to find out about the deceased person's assets include:
- Banks and building societies
- Pension providers
- Companies the deceased held shares in or had investments with
- Their employer
- Organisations holding assets in a Trust
- Life insurance policies
- NS&I (Premium bonds)
- Friends and family members, who may have received a gift.
The organisations you might write to in order to find out about the deceased person's debts include:
- Utility providers
- Local council
- Their mortgage lender
- Loan or credit agencies
- The funeral home or person who arranged the funeral
- Their residential care home or agencies that provided them with care.
You will also need to get an estimated value of all the other things the deceased person owned, such as property, furniture, jewellery and artwork. This needs to be the current market value, rather than the value at which the item was purchased or insured for. You can research the probable value of these possessions, or you can get a professional valuation.
For more information about valuing a property for Probate, see How to get a House and its Contents Valued for Probate.
If the deceased person owned an asset with another person (or people) you can use an estimated value of the deceased's share. So if the deceased owned a property as joint tenants with a spouse or civil partner, he/she will actually only have owned half the property. This means you should divide the value of the entire asset by two.
Is Inheritance Tax Payable?
Once you have got all the valuations for the assets, debts and gifts, you can calculate whether or not Inheritance Tax is due.
In very basic terms, you need to:
- Add up the total value of all the assets and non-tax exempt gifts to get the gross value of the Estate
- Then, add up the total value of the outstanding debts
- Then, deduct the total value of the debts from the gross value of the Estate to get the net value of the Estate.
If the net value of the Estate is above the Inheritance Tax threshold, then Inheritance Tax will be payable.
However, it's not always quite as easy as that. Just working out the Inheritance Tax threshold can be confusing, as it will differ if the deceased was married or is leaving their home to their children. There may also be certain reliefs and exemptions that can be applied, such as tax relief for agricultural assets or charitable gifts.
That's why many Executors and Administrators instruct a Probate Solicitor to apply for Probate on their behalf. A Probate Solicitor can contact the necessary organisations, work out the value of the Estate, and determine what the exact Inheritance Tax threshold is. They can then use this information to calculate whether Inheritance Tax is due, and if so, how much Inheritance Tax has to be paid.
*We can pay all the costs of a Co-op Funeral when you use our Probate Complete Service, and the Estate has sufficient assets which can be sold in due course.