Probate valuation of estate

Reasons to value an estate for probate

You need to value the estate for several reasons:

• a value of the estate is needed to make the probate application
• whether or not inheritance tax needs to be paid (and how much if so) will depend on the value of the estate
• 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, such as debts and funeral expenses, before Inheritance Tax exemptions have been applied.

When to value an estate for probate

When going through the probate process, valuing the estate will be one of the first things you 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. To complete the Inheritance Tax forms, you need to know the value of the estate.

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.

Valuing the estate for Inheritance Tax

Accurately calculating the value of the estate is particularly important because this determines whether the estate will be subject to Inheritance Tax.

Every estate has a tax-free allowance, meaning that anything under this limit (called the ‘threshold’) is not liable for Inheritance Tax. The current threshold for a non-taxable estate as set by HM Revenue & Customs is £325,000.

The estate could be eligible for an additional £175,000 tax free allowance if the home of the person who died is being passed down to their children or grandchildren. This is because of a tax allowance called the residence nil rate band.

In addition, there are a range of other Inheritance Tax exemptions that could be applied, depending on what's in the estate and who is inheriting from it. For example, anything being left to a spouse or to a registered charity won't be liable for Inheritance Tax.

For more information, see probate and Inheritance Tax.

Valuing parts of the estate for probate

The main parts of the estate that will need to be valued are the assets, liabilities (debts) 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 that was owned solely or in distinct shares (such as 50% of a house), as well as anything that was owed, like unpaid wages. Probate assets typically include:

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

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.

Start by going through paperwork. It's also a good idea to ask family members, friends and any professionals the person 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 individual'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 providers
• NS&I (Premium bonds)
• friends and family members, who may have received a gift

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.

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

Liabilities can be dealt with in 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.

How to get a house and its contents valued for probate

Often, one of the biggest assets that a person will own is their home together with everything in it. So how do you calculate the value of a property and all of its contents for probate?

The value placed both on the house and its contents will need to be reflective of their realistic selling price on the open market at the time of death.

Valuing a house and everything inside it is no mean feat, but there are set processes that you can follow to make it as straightforward as possible. By following these processes, you can also reduce the risk of HM Revenue & Customs disputing any of the valuations you provide to them.

Get a probate property valuation

The local estate agent may seem the obvious choice for valuing a property, but if the estate is liable for Inheritance Tax it's a good idea to get a valuation from a chartered surveyor instead. A surveyor will have the experience and knowledge required to provide a valuation specifically for Inheritance Tax purposes, so it is more likely this valuation will be accepted by HMRC.

The property valuation is potentially subject to examination by the District Valuer Services (DVS) of HMRC to ensure that it is accurate. If they feel that the valuation is not correct, they will challenge this and request evidence to support the valuation given. If HMRC believes that the executors or administrators have been 'negligent' in how they valued the property, they could impose financial penalties. If you realise the valuation provided to HMRC is too low, you will need to update HMRC with the correct value.

Calculating the value of the house contents

It can be difficult to know where to start when trying to work out the value of everything that someone kept in their home. Some treasured items which cost a lot of money when new may no longer hold much value, while other items might be worth more than you expect.

First, make a list of any items that you think might hold value. This might include cars, jewellery or furniture. Look online at how much similar items are being sold for, taking into account how the age and condition compares. If there's expensive jewellery which is no longer fashionable, it could potentially be worth more as scrap.

Bear in mind the insurance valuation of an item will reflect its value when new. So it's likely that older possessions will be worth less than their insured value.

For more specialist items, such as antiques, valuable artwork or other collectibles, it's best to get a professional valuation.

If you don't want to value the contents of the house yourself there are companies that can do this for you for a fee. Alternatively, if you don't think the house contents have any value, you could use a house clearance company to empty it for you.

Valuing lifetime gifts for probate

To value lifetime gifts, you need the value of the gift on the date it was given, as long as the person who gifted it didn't continue to benefit from it. If they did continue to benefit (such as gifting a property and then receiving rent from it or continuing to live in it for free) the date of death value is needed instead. 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.

How to value different assets

Different assets will need to be valued in different ways:

• 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 for 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 value the 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.

How to value an estate for intestacy

If someone dies without a will, their estate will be distributed in line with inheritance rules called the rules of intestacy. These rules will look at how much the estate is worth and what surviving relatives there are. If the estate is worth more than £270,000, this can have a bearing on how it's distributed. This is why it's necessary to value the estate properly.

Under the current intestacy rules, if the person was married or in a registered civil partnership when they died and the value of their estate is less than £270,000, then everything will go to their spouse or civil partner. If the value of the estate is more than £270,000 and the person who died left behind children or grandchildren, they could be entitled to some of the estate.

So, to determine what happens to an estate without a will, the administrator first needs to value the estate establish whether it's worth over £270,000. Once the value of the assets has been calculated and the value of the liabilities has been deducted, this will leave the net value of the estate for intestacy purposes. The administrator can then ensure the estate is appropriately divided in the eyes of the law.

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.