How to value a house and its contents for probate

As part of applying for probate, personal representatives need to value the estate of the person who's died. Rachel Collett of Wright Hassall explains how to value a house and its contents.

Do you need to value someone’s estate for probate?

To apply for probate, ‘executors’ (the person(s) named in the will to deal with the estate) must provide HMRC with details of all assets and liabilities (including joint assets) and any gifts made by the deceased during the seven years prior to death. As part of this, they will need to value the ‘estate’ (money, property and possessions) of the person who has died so that they know if there is any inheritance tax (IHT) to pay.

HMRC expect executors to make full enquiries into the deceased’s finances, check with the deceased’s family and review the deceased’s bank statements for the previous seven years. Failure to carry out their responsibilities could result in financial penalties against the executor.

It should be noted that if there is no will or an executor hasn’t be validly appointed, then the application is for a 'grant of letters of administration’ rather than a ‘grant of probate’ and is made by the ‘administrators’ rather than the executors. Administrators and executors are generically called ‘personal representatives.’

Depending on the size and nature of the estate, personal representatives will need to complete either:

An IHT 205 form, which is relatively short and is sent to the probate registry when applying for probate
An IHT 400 form, which is lengthier and must be sent to HMRC

It is also important to know the value of a property when someone dies so that you know whether there is any Capital Gains Tax (CGT) due if the property is later sold.

How do you value the estate for probate?

You should be able to value some of the assets of the estate quite easily, for example money in bank accounts or stocks and shares. But for property and contents it is not as straightforward, and you may need the help of a professional valuer.

The value is the open market value, that is the price the asset might reasonably fetch if it was sold on the open market at the date of death. This represents the realistic selling price of an asset, not the insurance value or replacement value.

How do you get a valuation for property?

It can be complicated to value a property and it is recommended that you obtain a professional valuation. This can either by an informal valuation provided by an estate agent or a formal valuation carried out by a qualified valuer, such as a surveyor.

Informal valuations

Some estate agents carry out informal valuations for free and others will charge a relatively low fee. If you are going down the informal valuation route, however, it is recommended that you get several valuations (three or so) and take the average value. An informal valuation is more likely to be used if there is no IHT to pay and if the property is a normal residential property.

Formal valuations

If there is likely to be IHT payable on the estate, then you should obtain a formal valuation. A formal valuation will cost more money than an informal one, but it will be more detailed. You should also obtain a formal valuation if the property is not a straightforward residential property, for example a farm, business premises or land with development value. The valuer will also be able to advise on the availability of agricultural property relief (APR) and business property relief (BPR).

What needs to be considered when valuing property for probate?

It should be noted that the valuation of a property should be an open market value at the date of death and should be made based on the guidance provided in a manual by the Royal Institute of Chartered Surveyors (RICS) entitled RICS Valuation - Global Standards, often referred to as the ‘Red Book’. The valuation should be in accordance with the conditions set out in s160 of the Inheritance Tax Act 1984.

The executors must provide the valuer with a copy of the deeds so that they can check the ownership and extent of the property. There are many things to consider:

The valuer should consider any covenants or easements that may affect the value of the land and check the planning permission if they think that there could be an agricultural tie.
If the property is leasehold, they should check the number of years left on the lease as this can affect the value.
If the property is let they should obtain a copy of the lease to see the terms of the lease, the commencement and expiry dates, the rent payable and who is responsible for outgoings.
You can discount the value of a property if it is by the deceased and others to reflect the difficulty in selling a share of the property when others have a share in it. However, this is not available if the deceased owned the property jointly with a spouse or civil partner.

If tax is likely to be payable, then HMRC will employ the district valuer at the local valuation office to value the property on their behalf. If the district valuer does not agree with the valuation submitted, then it will be necessary for them and the person who carried out the valuation on behalf of the estate to negotiate and agree on a value for probate purposes.

Whether the valuation is formal or not, it is important to be able to justify the value submitted to HMRC and they can raise a penalty if they consider that the executors have been negligent. If there is any indication before applying for the grant that the valuation is too low, then you should obtain a new valuation.

What contents need valuation for probate?

Before you value the contents for probate, first you need to identify what the contents are. Items may not necessarily be at the deceased’s house and they may be in safe custody at the bank or a building society, so you need to check whether they hold such items when notifying them of the death. Other items may be held for safe keeping by another member of the family, particularly if the deceased had been in hospital or had been living in a care home prior to their death.

Items can include:

jewellery
vehicles (including boats, caravans, aeroplanes etc)
personalised number plates
works of art
china
silverware
glass
furniture
electrical goods
clothing
collections such as coins, stamps or wine

To make sure that you have included everything you should check whether there are any items referred to in the will or included on the insurance documents. If they cannot be found, then the deceased may have given them away during their lifetime.

How do you value contents for probate?

You do not need to get a professional valuation on contents if you can use publicly available data to estimate the value. For example, you can value a second-hand car by looking at a used car price guide.

If the total value of the contents is expected to be less than £1,500 then you do not need a formal valuation and a reasonable estimate can be used. However, HMRC do have the right to ask for further details and so it may be worthwhile taking photos before the property is cleared.

Any jewellery worth over £1,500 and any antiques, works of art or collections need to be listed separately on the IHT 400 form and so if the estate consists of any of these items you should obtain a professional valuation.

For the remaining items that do not need to be listed individually you can ask the valuer to give a valuation of the whole. Remember to ask for an open market valuation and not a probate valuation as historically such valuations discounted the open market by 10 per cent. When requesting a formal valuation, it may be a good idea to ask the valuer to provide a valuation for insurance purposes at the same time so that you can check that the existing insurance cover is adequate.

How do you calculate inheritance tax (IHT) for probate?

To calculate any inheritance tax owed, you need to know the net value of the estate. You then must check whether any assets in the estate qualify for exemptions, for example spouse exemption, APR or BPR. Then, you need to calculate the deceased’s IHT threshold, otherwise known as the ‘nil-rate band’:

Everyone has a nil-rate band which is currently £325,000.
However, if the deceased made any gifts in the seven years before they died then, depending on the size and nature of the gift, this may use up some or all their nil rate band.
For deaths on or after 6 April 2017 the deceased may also benefit from the residential nil-rate band if they owned a residential property that passes to direct descendants.
If the deceased had a spouse or civil partner that had predeceased them then it may be possible to transfer some or all their nil rate band and/or residence nil rate band.

Once you have applied any exemptions, plus the nil-rate band and transferable and residence nil-rate bands (if applicable) to the net value of the estate, then IHT is charged at anything above that at 40 per cent (where at least 10 per cent of a person's net estate is left to charity the rate is 36 per cent).

How long can valuing an estate take?

Executors should be able to obtain date of death valuations from the various financial institutions within four to six weeks. Where valuations for contents and property are required, most valuers should be able to complete the valuations within a month of being instructed.

However, this can take longer for the formal property valuations as they are more detailed. If HMRC decides to instruct the district valuer, then it can take several months to hear from them and for the valuation to be agreed as it may involve a visit to the property by the district valuer.

About the author

Rachel Collett is a Chartered Legal Executive specialising in probate at Wright Hassall.

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Find out more

Inheritance Tax: return of estate information (IHT205) (GOV.UK)

Inheritance Tax account (IHT400) (GOV.UK)

Capital Gains Tax (GOV.UK)

Red Book (RICS)

Inheritance Tax Act 1984 (Legislation)

Image: Getty Images

Publication date: 21 May 2020