Probate valuation of estate

Reasons for estate valuation

Estate valuation is necessary for several reasons:

• a value of the estate is needed to apply for probate, both for inheritance tax purposes and for the probate application itself
• individual assets need to be valued in order to calculate the capital gains tax on any assets that have increased in value since the death
• valuing the estate makes it possible to ensure that debts are paid and the estate is correctly distributed to the beneficiaries
• the gross value of the estate is the total value of all assets. It is the value of the Estate before deducting mortgages, funeral expenses and debts
• the net estate value is the gross estate minus liabilities i.e. the debts and funeral expenses – before inheritance tax exemptions have been applied

Valuing parts of the estate for probate

The main elements of the Estate requiring valuation are the Assets, Liabilities and Lifetime Gifts.

Assets need to be valued at their open market value. This is the price the asset might reasonably fetch if it was sold on the open market at the time of the death. This represents the realistic selling price of an asset, not an insurance value or replacement value.

The assets which make up the Estate include anything the deceased owned solely or in distinct shares (i.e. half a house), as well as anything owed to the deceased such as unpaid wages. Probate assets typically include:

• monies in bank accounts
• property and land
• personal possessions
• business assets

Liabilities are often dealt with in several different ways. If the deceased had any outstanding creditors it is normally possible to agree a repayment figure based on the date of death. However, it is possible that any interest-bearing liabilities will continue to accumulate interest. For more information see How to Deal with Probate Liabilities.

Lifetime Gifts: the value needed is the value at the date of the gift unless this was a gift from which the deceased person continued to benefit, in which case the date of death value is needed. For more information see Lifetime Gifts explained.

Valuing joint assets

The deceased's share in any jointly held assets should be ascertained and valued, even if passing to the surviving joint owner automatically by survivorship. See Joint Ownership below.

Never guess a value

If you don't know the exact value of any item, and the value of the Estate is likely to be less than £250,000 it's normally ok to use an estimated valuation figure. You should never guess at a value, but try to work out an estimate based on the information you have.

Why are valuations important?

As mentioned above, one of the core responsibilities of the Personal Representatives is to value the deceased's Estate in order to make an application for a Grant of Probate or Letters of Administration. All the Estate assets and liabilities must be declared, whether or not Inheritance Tax is due, and must be accurately valued.

The latest guidelines on the value of assets to include in the application form for Probate state that a Personal Representative should "make the fullest enquiries so that you can show that the figures on this form are correct. If you cannot find the value for an item you may include your best estimate".

Although open to interpretation, it is generally accepted that what the 'fullest enquiries' involve varies with the value of the assets. For example:

• houses and expensive items such as antiques involve obtaining professional valuations
• car values can usually be judged from comparative market figures
• share values should normally be taken as those published on the day of death
• most other values can be obtained by writing to all banks, energy companies and other institutions for date of death balances including any accrued interest to that date.

As far as possible all valuations should be at the date of death. If the valuation given by a professional for a property at the date of death differs significantly to the final selling price, then Personal Representatives may ask the valuer to re-consider their value.

If an Estate is liable to Inheritance Tax, then HM Revenue & Customs (HMRC) will require accurate valuations. It is the duty of the Personal Representatives to provide the valuations, and HMRC may then challenge those valuations, and raise enquiries that the Personal Representatives need to answer.

Valuations are an area of risk for Personal Representatives, so it is important to take care to properly ascertain the value of assets. For assets with a significant value it is important to instruct a qualified independent valuer, to make sure the valuation is done correctly, and that the valuation meets the relevant professional standards.

Professional estate valuation

Whilst all assets, liabilities and lifetime gifts must be valued and those values detailed on the Inheritance Tax form comprising part of the Probate application, some assets will be easier to value than others. Generally speaking, the size of the Estate often determines how detailed the valuation should be. However, substantial assets such as land and property will always require a professional valuation, and possibly negotiations with HMRC to answer their queries and agree a value with them.

When obtaining a professional valuation of property and land it can be advisable to ensure that the valuator meets Royal Institution of Chartered Surveyors (RICS) or equivalent, standards. Some issues are easily overlooked when instructions are given for a professional valuation. For example, the potential for the development of the land, the existence of tenancies or occupancy by people other than the deceased.

You don't usually have to get a professional valuation for ordinary household or personal items if the individual items have a value of less than £500 or you can use publicly available data to value the items – for example, to value a second hand car. This includes items such as furniture, pictures, paintings, china, TV, audio and video equipment, cameras, jewellery, cars, caravans, boats and antiques.

Values of bank accounts or other investments with building societies and National Savings can be supplied by each organisation. They will include in the figure any accrued interest which is due at the date of death but which has not yet been added to the account as this is an asset of the Estate for Inheritance Tax purposes.

You do not have to get a professional valuation for quoted stocks and shares. You can value shares quoted on the London Stock Exchange by finding the price of the shares online. You will need to bear in mind that the share prices quoted may be from the previous day, and you will also need to add any dividends due to the deceased at the date of death but not paid as, like bank interest, these are an asset of the Estate.