Probate value vs market value

If you are dealing with the estate of someone who has died, you will need to value it and report this value to HM Customs & Excise. To establish an accurate valuation of the estate as at the date of death, you will need to consider how best to deal with each asset. We take a look at both the probate value and market value of property and the process of selling a home after a death.

At Lockings Solicitors, we deal with estate administration and probate property sales. If you are dealing with an estate and you would like help, please feel free to call us.

We offer a free initial chat to enable you to ask us about the probate and conveyancing processes as well as any other questions you may have.

You can ring us on 01482 300 200, email us at welcome@lockings.co.uk or fill in our Free Online Enquiry and we will call you back promptly.

What is probate?

The term probate is commonly used to refer to winding up someone’s affairs after their death. A Grant of Probate is a legal document that gives authority to the deceased’s executors named in their Will to deal with their estate. If the deceased did not leave a Will, a Grant of Letters of Administration may be needed instead.

The first step in obtaining a grant is to establish how much the estate is worth and whether Inheritance Tax is payable. If Inheritance Tax is payable, you will need to provide HM Revenue & Customs with accurate valuations of the deceased’s assets. If the estate is a smaller estate, then it might not be necessary to obtain a grant.

Is Inheritance Tax payable?

Inheritance Tax is usually payable if a deceased’s estate exceeds the available allowances. Each individual has an allowance of £325,000. Below this threshold, Inheritance Tax is not payable. If they were married or in a civil partnership and their spouse or civil partner has died, any of their partner’s Inheritance Tax allowance that was not used on their death can be transferred making a total potential allowance of £650,000.

There is also a property allowance available if a property is left to direct descendants such as children or grandchildren. This is £175,000 for each person and unused allowance can again be transferred to a spouse’s or civil partner’s estate.

To establish whether Inheritance Tax is payable, the assets in the deceased’s estate need to be valued. If Inheritance Tax is due, you will need to obtain accurate valuations of the estate.

Probate valuation

A probate valuation usually refers to a professional valuation carried out by an expert for the purposes of reporting the value of an asset to HM Revenue & Customs.

The government’s guidelines suggest that you can have property or land valued by an estate agent or a chartered surveyor. Other items worth more than £1,500 can also be professionally valued. For example, you can ask jewellers or art experts to value jewellery or paintings owned by the deceased and provide their written probate valuation.

A probate valuation is considered to be a more accurate and well-considered valuation than would be obtained by simply looking at similar properties or items that have sold recently. It is more likely to stand up to scrutiny, should HM Revenue & Customs investigate the value.

For example, if HMRC had queries over the value of a property, they could ask the District Valuer to investigate. Your chartered surveyor’s or estate agent’s figures could then be closely examined for accuracy. A chartered surveyor will usually take into account issues such as:

• The age of the property
• The style of construction
• Property location and any relevant local matters
• The state of repair
• Unusual features

A chartered surveyor’s open market valuation will be prepared in accordance with the Royal Institution of Chartered Surveyors’ ‘red book’. The valuation will include photographs and evidence of comparable properties.

Market valuation

A market valuation or informal market appraisal prepared by an estate agent is generally considered to be a broader approach and will take into account how much similar properties nearby have sold for. It is open to executors to ask two or three estate agents to provide their market appraisal and use the average valuation figure.

The market valuation prepared by an estate agent will be different to a potential asking price and will be their estimate of what they believe the property could reasonably have fetched as at the date of death.

Should I obtain a probate valuation or a market assessment?

If the value of property is substantial or it includes land or it is fairly unusual it can be advisable to obtain a valuation from a chartered surveyor. Otherwise, an estate agent’s probate valuation will usually be sufficient.

Using a professional RICS valuer will offer better protection to the estate’s executors from liability for penalties that could be imposed if HM Revenue & Customs find that an error has been made in reporting the property’s value.

For example, if an error is made because of a lack of care in valuing the property, a penalty of up to 30% of the extra tax can be imposed. A deliberate error can result in a penalty of up to 70% of the extra tax due, while a deliberate and concealed error can be penalised by a penalty of up to 100% of the extra tax due.

Selling a probate property after death

If an estate includes property, then it will be necessary to obtain either a Grant of Probate or a Grant of Letters of Administration in order to sell it. The steps involved in selling a property are, briefly:

• Value the estate
• Calculate whether Inheritance Tax is payable; if it is, request a payment reference number from HM Revenue & Customs
• Complete HM Revenue & Customs Inheritance Tax form and schedules
• Pay Inheritance Tax where due
• Apply to the Probate Registry for a Grant of Probate or Grant of Letters of Administration

Once a grant has been received, you can market the property.

What happens when the sale price is higher than the probate valuation?

It may be the case that the sale price of a probate property is higher than the probate valuation. For example, prices may have risen in the months since the date of the valuation, which is the date of death.

Once HM Revenue & Customs has accepted the valuation, they will usually view any increase on the sale of the property as a capital gain during the estate administration period. This will need to be included in the estate accounts. If the capital gain exceeds the annual exemption amount, capital gains tax will need to be paid. It may be necessary to complete an estate tax return in respect of this although in some cases it can be dealt with informally. Capital gains tax should be paid within 60 days of the date of completion of the sale.

Contact our East Yorkshire and York probate solicitors

The probate process can be complex and is generally time-consuming. If you decide that you would like us to deal with an estate administration on your behalf, we would be pleased to represent you.

To take up our offer of a FREE initial chat, call us on 01482 300 200, email us at welcome@lockings.co.uk or fill in our Free Online Enquiry and we will call you back promptly. As well as helping local clients in Beverley, Hull and York, we also act for clients from across East Yorkshire and the York area.