If you’ve been thrust into the role of executor or administer, it’s likely you have quite a few questions about the probate process.
In our experience, many of these questions revolve around one of the most complex aspects of probate – valuing the estate. More specifically, valuing the property owned by the estate.
For most of us, the home will be our loved ones’ most valuable possession, so it’s important to get the valuation right. In this article, we’re going to look at how property valuation fits into the big probate picture and the steps you need to take.
Why Do You Need to Value Property for Probate?
Probate is, simply, the process of distributing a deceased person’s assets to beneficiaries, as named in a will or determined by the rules of intestacy. These assets are collectively known as the estate and in order to distribute them, you have to know what they’re worth.
More than this, though, a valuation allows you to calculate how much the estate will owe in taxes, whether this is via Inheritance Tax or Capital Gains Tax. With property likely being the highest cost asset in the estate, having an accurate value is essential.
If you overvalue property you could find the estate paying too much in taxes, while undervaluing property could result in HMRC demanding an explanation.
How to Value a Property for Probate
When valuing property, your aim is to identify its market value and to do this you’ll need to consider a number of factors:
- Local Sale Prices: One of the best places to start is looking for similar properties in the area and identifying their sale price. This will not tell you everything you need to know but should put you in the right area.
- Investment: When valuing a property, it’s important to consider the attractiveness of the location now and in the future. Therefore, you’ll need to research any current or upcoming investments that will make the property more or less valuable.
- Repairs: It goes without saying that property in poor condition will be worth less, so make sure you seek advice on any repairs or maintenance that would need to be conducted.
- Lease: If the property is a leasehold, consider the length of time remaining on the lease and how that may impact its value.
- Local Amenities: Consider whether the property is near amenities such as schools, supermarkets, other shops and good transport links.
Estate Agent or Chartered Surveyor?
While valuing the property yourself is one option, the implications of submitting an incorrect value as part of the probate process are pretty big. As mentioned this could result in paying too much tax or having to explain why you haven’t paid enough and for that reason, most people decide to bring in an expert.
When deciding to get an independent valuation, it can be tempting to think of your local estate agent straight away, but using a chartered surveyor is another option.
The benefit of the latter is that they are typically more experienced with valuing properties specifically for Inheritance Tax purposes. Plus, a properly drafted and supported valuation by a chartered surveyor is more likely to be accepted by HMRC and so can avoid delays.
What if the Property had More Than One Owner?
Where a property has more than one owner the impact of the valuation can differ depending on whether the owners are joint tenants or tenants in common.
Joint tenants mean the property is wholly owned by each person. This is most common when spouses own a house together. In these cases, the property is automatically passed on to the remaining owner.
If the remaining owner is a spouse, then this is exempt from Inheritance Tax. If the owners are not married or in a civil partnership, then the property still automatically passes over to the remaining owner, but Inheritance Tax may still need to be paid.
Tenants in common refer to when two or more people own shares in a property. These shares do not automatically pass onto the remaining owners and can be passed on to someone else in the deceased’s will.
If the deceased person owns the property as a joint tenant, then the value of their property is typically the value of the property, divided by two. If the deceased was a tenant in common, the owners will have decided how to split the property between them. The starting point is equal shares but they can decide any other division they like. For tenants in common, the value is the property value divided by their share portion.
Calculating the Contents Value
As part of the probate process, you’ll need to value the contents of the property,. This can be a difficult and time-consuming process, with some items holding tremendous sentimental value, but worth little from a material standpoint.
Your first step should be to put together a list of items you think hold value, such as:
You can then use the internet to begin researching potential values. However, for any items you think could be worth more than £500, it’s wise to get an independent valuation from a specialist.
It may also be worth speaking to a solicitor about any items where you’re unsure of who has legal ownership. Digital music collections are a good example of this, where the deceased has spent a lot of money but has only leased the music.
Protecting Property During Probate
With the information above, you should have a clearer idea of why property valuation is important and how to go about it, but before we leave it there, one final consideration.
The probate process can often take six to nine months and could be even longer in complex cases. Properties going through the probate process can often be left unoccupied for months and therefore, as the executor or administrator of the estate, you need to protect against potential damage.
This usually means organising insurance for the property, which can come with its own stipulations. For example, insurance companies often require the heating to run for so long each day during the winter to avoid pipes bursting.
Always take the time to do more research about what you need to do to maintain a properties value. If you’re unsure, speak to a solicitor.
So, that’s the property valuation process for probate, but what else do you need to be aware of?
Aside from valuing property, managing the distribution of an estate comes with a lot of responsibility, including payment of debts and inheritance tax. This can often be a complex and time-consuming process, which is why many executors and administrators choose to seek professional help.
If you’re currently managing the probate process for an estate, speak to Glaisyers about how we can help you.Back
Chris is head of the firm's Private Client department. He is a qualified Trust and Estate Practitioner who helps clients to face a variety of challenges, including managing their assets and estates.
Chris Burrows - Head of Private Client
To discuss how Glaisyers can assist you contact Chris Burrows on Chris.Burrows@glaisyers.com or via 0161 832 4666.