Valuing a Property for Probate
12th July 2023 by Alison Lloyd
If you are dealing with an estate administration after someone has died and this includes dealing with their property, you will need to value it. We take a look at how to do this and why it is important to arrive at an accurate figure.
After a death, the first step the executors or administrators need to take is valuing the estate. It is often the case that the most expensive asset is the deceased’s property.
Why does an estate need to be valued?
The estate needs to be valued to establish whether or not Inheritance Tax will be payable. If the net estate is worth more than £325,000, then Inheritance Tax may be payable on the portion of the estate over this level.
There are some exceptions. Firstly, if some or all of the estate is left to a spouse, a civil partner, a charity or a community amateur sports clubs, then no Inheritance Tax is payable on that share.
Secondly, if a spouse or civil partner died before the deceased and their estate did not use all of their £325,000 allowance, the remainder can be transferred to the deceased’s estate.
Finally, there is another Inheritance Tax allowance available if the deceased left a property to their direct descendants, ie. children or grandchildren. This is known as the residence nil-rate band and is £175,000 for each individual. Again, if a pre-deceased spouse or civil partner’s allowance was not used when they died, this can be transferred.
How to value a property for probate
The value of the estate assets, including the property, should be the open market value as at the date of death.
Most estate agents will provide a market appraisal for probate purposes. This is different to a normal estate agent’s valuation made for the purposes of marketing the property. Instead, it will take into account how much similar properties were selling for at the time of death. Agents may make a charge for this type of valuation.
If the property was jointly owned with someone else as tenants in common, the deceased’s share will pass in accordance with the terms of their Will or the Rules of Intestacy. The valuation will usually be discounted to take into account that it would be difficult to sell only a share in a property.
Where a property was jointly owned with someone as joint tenants, then it passes automatically by survivorship to the joint owner rather than under the terms of the Will. The value of the one half share does however have to be reported to HMRC.
Professional property valuation for probate purposes
If the property is of high value, it is a taxable estate or it is unusual in some way, the estate’s executors or administrators are advised to obtain a formal professional valuation from a chartered surveyor. This will reduce the risk to them of any allegations that the property was not correctly valued. There will be a charge by the surveyor.
This type of valuation can be useful in the following circumstances:
- No similar properties have come onto the market, meaning there is nothing to compare the property to
- The property includes a large area of land
- The property is of unusual construction
- The property is in poor condition
- The property or land has potential for development
Royal Institute of Chartered Surveyors (RICS) members carry out ‘red book’ valuations. These are assessments and reports of the property’s value prepared in line with the RICS guidance, known as the red book. They are considered to be of high standard and can be relied on in court if necessary.
Why an accurate property valuation is important
If executors or administrators undervalue a property, then a lower sum of Inheritance Tax could be paid than is due. This could be of concern to HM Revenue & Customs and if it was found that an error had been made in the valuation, there is a risk that penalties could be imposed on the estate.
Where executors or administrators have made an error which has caused a loss to the estate, they will be personally liable for this, even if it was an honest mistake.
If an error is made because of a lack of reasonable care, HM Revenue & Customs could impose a penalty of up to 30% of the extra Inheritance Tax which is due.
If you would like to speak to one of our expert Wills and probate lawyers, please contact a member of Laceys Wills, Probate and Trusts team on 01202 377984 and we will be happy to help.