Valuing land and buildings
The deceased person’s home will usually be the most valuable asset in their estate. It will need to be valued for probate purposes even if the deceased’s family are not proposing to sell it.
In addition, you will need to value any other houses, flats or property assets the deceased owned. Property assets include farms and farm land, business properties like hotels, shops or factories, other land and buildings such as woodland, derelict land and lock-up garages and any rights that are attached to land, such as fishing rights.
Open market value
For the purposes of probate, the open market value can be used in assessing the value of the deceased’s home and also for other land and buildings owned by the deceased.
The open market value is defined as the price that the house might reasonably fetch if it was sold on the open market to a willing buyer at the date of the transfer.
In determining the value of the property any peculiarities (for example the fact that there is a buyer desperate for a house in that particular street and willing to pay a premium) should be ignored.
Valuation by personal representatives
If the house is straightforward then you can provide the valuation without seeking professional assistance. You should take all reasonable steps to put a correct value on the property.
HM Revenue & Customs suggests that a good starting point is to look at advertisements for the sale of similar properties in local estate agents and newspapers. In addition, the Land Registry will also show the recent sale prices of houses in the vicinity.
Account should be taken of the state of repair of the house as this may reduce the value. Account must also be taken of features, such as a large garden or potential access to other land potentially suitable for development, which might make the property attractive to a builder or a developer.
If you arrive at a range of values for the house then it is best practice to adopt a valuation somewhere in the middle of the range. Whatever the value you calculate you will need to be able to justify it if asked by the district valuer.
Valuation of a house by a property valuer
With fluctuations in the housing market continuing, you may want to consider instructing a property valuer or chartered surveyor to give a professional probate valuation.
The reason for this is to ensure that the house is not overvalued as this will result in an additional and unnecessary inheritance tax liability. It may be worth the expense as HM Revenue & Customs are more likely to accept a valuation if it is provided by a chartered surveyor.
Valuation of farms, timberland or land with development potential
If the property includes, for example, a farm, timberland, potential development land etc then a professional valuation should be made.
You will be responsible for the payment of the professional valuer’s fees, but you may be able to claim these back from the estate at a later date.
Tax reliefs available for properties used in business
You should be aware that there are tax reliefs available for properties used in business which can be used to reduce the inheritance tax liability. Business relief, agricultural relief or woodland relief may be available depending on the type of property and how it is used.
The transfer date is usually the date of the deceased’s death. However, if the house was transferred by the deceased by way of a gift in the seven years before their death then the transfer date is deemed to be the date the gift was made.
Valuing a share in a property
If the deceased person owned property jointly with other people, you will need to calculate the value of their share. For help, please see the separate section in Lasting Post called Valuing assets held jointly.
Interest in possession
One situation which is becoming more common is when the deceased person lived rent-free in a property left to someone else. This is called an interest in possession. An example is when a husband leaves a house to his children in his will but allows for his wife to live in the house rent free for the rest of her life. On her death the property will pass to the children.
However, the house will be treated as belonging to her for the purposes of inheritance tax on her death and will need to be included in the valuation of her assets.
Querying the valuation
Once the valuation of the deceased’s estate is complete, the Inland Revenue account will be submitted to the capital taxes office. The district valuer will consider the valuations given on any property comprised in the estate.
Although it is reasonably rare for valuations to be questioned it does happen. If a valuation is thought to be too low for any reason then the person who submitted the account will be asked to defend the value. In any event, if the property is sold soon after probate is granted then the capital taxes office will take the sale price instead of the previously submitted valuation figure and recalculate the inheritance tax liability.
In addition, if within four years of the date of death the property is sold for less than the value given then a claim can be made to HM Revenue & Customs for a part refund of the inheritance tax already paid.
Please note that information which we provide through Lasting Post is in outline for information or educational purposes only. The information is not a substitute for the professional judgment of a solicitor, accountant or other professional adviser. We cannot guarantee that information provided by Lasting Post will meet your individual needs, as this will very much depend on your individual circumstances. You should therefore use the information only as a starting point for your enquiries.