Probate Valuations – Executors Don’t Get Caught Out!

You’ve probably heard the term ‘probate valuations’ but what does it mean exactly?

One of the first things an executor needs to do is find out what the deceased’s assets are worth. An executor must be prepared to file information with HMRC about the assets in the estate. The asset values should be as accurate as possible.

Very often the most valuable asset in an estate is the deceased’s property. Property can also be the least straightforward asset to value.

Probate valuations could be a mistake

Estate agents often give ‘probate valuations’ but those kinds of valuations may not be good enough for HMRC.

I’ve asked Nottingham chartered surveyor Richard Cruise to explain what is involved in property valuation for probate; when it’s necessary and why.

Richard, first of all, explains why the term ‘probate valuation’ is often misleading. Richard says:

“It is important to clarify that the valuation should be stated to be a ‘Valuation for Inheritance Tax purposes‘ to gain probate and not a ‘Valuation for Probate purposes’ as this is incorrect and could be challenged by HMRC.” – Richard Cruise

The type of valuation required is defined in section 160 of the Inheritance Tax Act 1984 as being market value – there’s no mention of ‘probate valuations’.

Calculating market value is done using the following principles of a hypothetical sale:

• The ‘seller’ and ‘buyer’ are prudent and willing parties to the transaction.
• The property is offered for sale on the open market by whatever method of sale would achieve the best price.
• There are adequate publicity and advertisements for the sale to take place.
• The valuation should take account of the fact that there could be a “special purchaser”, i.e. someone that is willing to pay more than the market value because they have a special interest in the sale.

This is very far from what many people think of as probate valuations. A common mistake executors make is to assume that ‘probate valuations’ are automatically 10% lower than valuations given for the purposes of selling a property. 

Who should you ask to undertake probate valuations? 

It is very important for anyone in charge of a deceased person’s estate to obtain a professional valuation from a Chartered Surveyor who has the knowledge and expertise to provide an accurate valuation. An executor may have to rely on the accuracy of a property valuation if there is a later discussion with HMRC about the property or in any discussions with beneficiaries. 

What should the valuation report cover?

The Chartered Surveyor’s report should give a description of the property’s, age, type and location. The state of repair should also be commented upon in general terms but it should be remembered that it is a valuation and not a survey. The valuation report should mention any special features about the property that could affect its market value, such as local restrictions on building.

‘Probate valuations’ may catch the attention of HMRC

HMRC conduct approximately 9,500 investigations each year into deceased persons’ estates. Tax inspectors are on the lookout for “guestimate“ valuations. HMRC has the power to impose fines of up to 100% of the additional tax liability plus the 40% liability payable. The average additional payments have been in the region £24,600 for each incorrectly valued estate.

Richard Cruise says: “The average cost for a Valuation for Inheritance Tax purposes is in the region of £250. Any additional fees for negotiation with HMRC would depend on individual circumstances. If the valuation has been undertaken diligently by a qualified valuer then HMRC will in most cases accept the figure without argument and those in charge of the estate will not be contacted further.”

Executors could be at risk if they fail to value assets accurately.

Executors may be personally liable if the estate is hit with additional penalties that could have been avoided if a professional valuation had been obtained. Ultimately it is the executor’s job to take steps to ensure that the correct information is supplied to HMRC.

Please note: we do not undertake probate valuations of property or valuables. Valuations should be undertaken by suitably qualified professional valuers or surveyors.

Nothing in this article constitutes legal advice. The information is for general interest only.