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When a person died, they leave behind a web of assets, money, and property — all which need to be divided among the beneficiaries named in the Will. But it’s not as simple as just being ‘handed’ the keys to the property of the deceased: There’s a legal process involved, known as ‘applying for probate’. And this takes time.
Having to deal with probate valuations can be tricky, especially when you’re already mourning the loss of a loved one. But it’s absolutely vital to understand the net worth of the property you’re inheriting — especially as this will tell you how much inheritance tax you’ll end up having to pay. Not taking probate valuations seriously could land you in some serious legal hot water, so you’ll want to understand exactly how to go about it the right way.
This blog post dives into the meaning of probate valuations, and what you can expect to pay for them.
A probate is a legal process that takes place following a person’s death, and concerns the assets, property and money of the deceased. In order for a relative or close relation of the deceased to assume the legal right to handle their assets, they have to carry out a process known as applying for probate.
In the deceased’s Will, they will have named the person (or people) who’ll be entitled to their property. Before the beneficiary of the property can become the legal owner, the property has to undergo a probate valuation; in which the courts will establish how much the home is worth.
A probate valuation is also used to:
- Find out whether or not inheritance tax needs to be paid, and if so, how much
- Calculate the Capital Gains Tax on any assets that have increased in value since the death
- Ensure any outstanding debts are paid off, and the estate is properly distributed to the beneficiaries
- Make the probate application (as the probate valuation has to come first)
The property will be valued against the open market value, which is how much the property would be worth if it was sold on the open market. The gross value of the estate is what the home is worth before mortgages, debts, inheritance tax, and funeral expenses have been taken into account.
It’s usually the executor or administrator of the estate who’s responsible for carrying out the probate valuation. They’ll get an estimation on the value from a qualified estate agent or chartered surveyor. Going with the latter is extra important, because they’ll estimate a value that takes inheritance tax into consideration — and the valuation they come up with has a higher chance of being accepted by HMRC. Some solicitors also offer probate valuations as part of their services.
It’s usually recommended to get two or three valuations of the property rather than accepting the first valuation you get. You can also check what other homes in the area have been sold for, and work out an average from all the information in front of you.
Probate valuations aren’t like normal property valuations, where an estate agent comes to have a look at the home and gives you a number within 48 hours. Probate valuations can take anywhere between a month and half a year — or sometimes longer, depending on the size of the estate.
Once you’re happy with the valuation, you’ll submit it to HMRC for review. In some cases, they might challenge the number you’ve come up with, or ask for evidence to support it. If they find evidence of negligence, you could be liable for financial penalties or legal action.
Some estate agents offer free valuations, which might be handy if you’re in a difficult financial situation. However, given the implications of an inaccurate property valuation, you might want to go with HMRC’s own recommendation of getting a chartered surveyor or two round — which isn’t free.
Most valuators will charge you a fee, which is usually between 1-5% of the overall property value — so what you end up paying will depend largely on the size and worth of the property. Some surveyors offer a fixed fee.
As you’re budgeting for a probate valuation, remember to factor in the cost of getting second or third opinions (if you want to be thorough).
Probate Valuations – A Summary
If you’re the beneficiary of the property that needs to be evaluated for probate, and you’re not actively looking for cash buyers for the home, you might wonder why the house still needs to be valued. As we explored in this blog post, this the best possible way to find out how much inheritance tax you’ll have to pay on the estate — whether you’re looking to sell it or not.
If you do end up selling the property, and it sells for less than the probate value, you may end up getting a refund from HMRC for overpaying on inheritance tax. This refund can only be claimed if the property sells within four years of the deceased’s passing.
Ultimately, most beneficiaries want the lowest possible probate valuation on the property, because the lower valuation, the less inheritance tax they’ll have to pay. But if HMRC catches onto you intentionally undervaluing the property, they’ll order you to pay more in legal penalties than you’d have to pay in inheritance tax. The practice is to make sure the valuation is fair and accurate, by getting as many professional opinions as you can afford.
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