Considering what will happen to your assets after you die is an issue avoided by most people. According to research conducted in 2018, more than half the UK population have not prepared a Will and risk dying intestate.
Those who die intestate have their estate administered in accordance with strict intestacy laws, rather than in accordance with their wishes. Whilst this is often the main reason to write a Will, there are others, including estate planning and working to reduce the impact of Inheritance Tax (IHT).
Even with a Will, the process of dealing with an estate still involves a great deal of administrative work on the part of those left behind, with a large proportion of this work centred on the probate process.
Probate is the process of dealing with the estate of the deceased. This will typically involve clearing any outstanding debts and then distributing the assets according to the terms of the Will. This often requires the estate to be valued. Arriving at an accurate valuation of any property and personal effects of the deceased is one of the more complex aspects of the process.
The value of the estate will determine whether IHT is due. It will also determine whether the executor has to complete an IHT 205 form or the longer and more complicated IHT 400 form. The former has to be sent to the probate registry, while the latter goes to HM Revenue & Customs.
An accurate valuation of any property is essential so as to realise its true value through any sale at a later date, and the amount for which it eventually sells will determine whether Capital Gains Tax has to be paid.
Many aspects of valuing an estate are actually relatively simple, particularly when dealing with parts of the estate such as stocks, shares and savings. When it comes to a property and its contents however, it will usually require the services of a professional to reach an accurate figure.
The value of the property has to be its open market value, which means a reasonable estimate of what the asset might fetch if it was sold on the open market at the time of death, rather than the replacement or insurance value.
There are two routes to valuing a property: asking for an informal valuation from an estate agent, or the more formal route, involving a surveyor qualified to value property.
If you ask an estate agent to carry out an informal valuation, there is a chance that they might do it free of charge, or for a small fee. Given the accepted variation between agents, three such valuations should be sought and the average of the values used.
Typically, it is best to only use an informal valuation when the property is a standard residential property and there is unlikely to be any IHT to pay.
If IHT is likely, then the figures involved mean a formal or ‘Red Book’ valuation of the property is recommended. There will be a fee, but in return you will be given a detailed valuation by a professional who will also be able to offer advice on matters such as business property relief and agricultural property relief, and if required, negotiate and agree the probate value with HM Revenue & Customs’ District Valuer.
When arriving at a valuation of the property, a professional valuer will require the executor to share any relevant information discovered via their own investigations into the estate or merely through personal knowledge of the deceased.
They will also consider any potential for development, which should be reflected in the valuation. This is known as ‘hope value’ and should be considered even if planning permission has been neither sought nor granted.
The valuer will also need a copy of the deeds or title register, to make allowances for any matters affecting the property, such as covenants or easements, remaining years on a lease if the property is leasehold and the terms of any lease – such as the rent payable and when the lease expires – if the property is being let.
Valuing Contents and Personal Effects
The personal effects that need to be valued could include items as large as cars or as small as jewellery and could include artworks, furniture, electrical goods or antique collectibles.
When the total value of the contents is expected to be less than £1500 a detailed valuation is not required, and a simple estimate can be submitted to HMRC. It pays to keep a photographic record of the items in question, and this should be kept in case HMRC ask for more information at a later date.
For many of the items contained in the contents of an estate, there is publicly available data to draw upon when it comes to forming your own idea of the value. Research online can be a valuable resource for this.
Items valued at more than £1500 should be valued professionally and listed individually on the IHT 400 form. Those of lower value that you do not want to estimate should be valued in bulk by a professional valuer. The valuer should clearly understand that you need an open market value, not an insurance replacement cost.
Whilst it is possible to undertake all this work yourself as executor, it is easy to make mistakes and they can be costly. It very often pays to seek professional advice from an experienced solicitor. Sarah Nash, an Associate Director in the Wills, Probate and Trusts team here at Ansons is on hand to help with any queries you may have. You can contact Sarah direct on 01543 267981 or email firstname.lastname@example.org
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