Jul 30

What you need to know about probate and inheritance tax

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When someone dies it is essential to deal correctly and efficiently with their estate, but issues in probate and inheritance tax can make this complicated. You might assume that if someone has made a will, this will take care of much of the complexity of the situation. But while making a will is important, it cannot always adequately prepare for inheritance tax.

A will explains how the deceased wishes for their property and estate to be distributed. However, an estate can be worth a great deal more than when a will is made – for example, if a property increases significantly in value. Here we look at some of the issues surrounding inheritance tax and valuations.


Red book valuation

Where a deceased’s estate is subject to inheritance tax, the assets nearly always include property or land. To get this valued, many will turn to their local estate agent, however, it is advisable to have a ‘Red Book’ valuation prepared by a member of the Royal Institute of Chartered Surveyors (RICS). The valuation can be used to calculate how much must be paid to HM Revenue and Customs (HMRC).

Despite there being no statutory obligation, HMRC will typically demand that a professional valuation be commissioned by the personal representative i.e. the party with the authority to administer the estate and who then holds any resulting tax obligation.


Understanding market value

The Inheritance Tax Act 1984 (IHTA 1984) defines ‘market value’ as “the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time”. (Section 160)

This is very similar to the RICS definition of market value which is: “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

This is in contrast to a valuation provided by an estate agent where there is no strict definition of market value and where the agent is merely providing a figure at which they would recommend marketing the property. This often varies significantly to what would actually be achieved in the current market. There is also no obligation for an estate agent to provide detailed analysis of the comparable evidence used in contrast to an RICS valuation, where the Red Book makes this a required standard.



Has the valuation been carried out effectively?

Your chosen surveyor also needs to confirm that they are impartial to the process and that they have the appropriate skill and knowledge to be able to undertake and carry out the valuation effectively.

HMRC will sometimes query the valuation when they come to making their IHT calculation. It is common for a District Valuer to be instructed to review the valuation and if further queries are raised, an estate agent’s valuation simply won’t be detailed enough. Nor will you find the agent who provided the valuation willing to interact with the District Valuer. Their priority was simply to get your property on the market with their agency. The Chartered Surveyor should, by contrast, be readily available to justify their figures if so called upon.

The majority of residential Chartered Surveyors will be well versed in the Red Book when it comes to valuing properties, but less so in terms of land which is more of a specialist area. If the contents of the property also need to be valued a further specialist will be required.


What to do if you need help with probate or inheritance tax valuations

If you are having an issues with probate matters or require a valuation for inheritance tax valuation it is recommended that you should get in touch with a Chartered Surveyor (such as Peter Barry Surveyors) with relevant experience in dealing with these matters. They will be able to talk you through the process and offer any advice and guidance you require, as well as the valuation services. This can make it much easier to deal with the challenges you will face with inheritance tax.



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