How do I find out the value of an estate?

How do I find out the value of an estate?

Before you can apply for probate, you need to value the estate (property, money and possessions) of the person who has passed away. This can take a long time and you might not know where to start. In this article we go through the process step-by-step, looking at what you can expect along the way and how to work out the value of the estate without any hiccups.

Why does an estate need to be valued?

The valuation of an estate is one of the most important roles to be completed once a person has passed. There are many reasons why an estate needs to be valued:

• It will determine whether or not inheritance tax should be paid and if due, how much
• It is required in order to make a probate application
  Individual assets also need to be valued to determine any Capital Gains Tax
• It is also necessary that you can find out the value of a deceased person’s estate to further tasks involving executors and benefactors. The only way to do this is to have it valued. It is often recommended to seek more than one valuation. If you need to pay Inheritance Tax on the estate then it may be advisable to seek a valuation from a Chartered Surveyor.

When does an estate need to be valued for probate?

An estate can be valued for probate anytime after the death of the owner. The valuation needs to be up to date and inclusive of the owner’s property and possessions. The valuation is often completed by an estate agent or chartered surveyor, though some people may choose to seek more than one valuation and then work out an average.

How long does it take to value an estate?

It can take up to nine months for an estate to be valued, and for more complex estates, the process can take even longer. There isn’t any rush to get this process complete, except if there is inheritance tax to pay, which is only the case if the estate is worth over £325,000.

How to value an estate for probate?

In order to work out the value of the estate, the following three areas need to be considered:

Value of any assets: this includes the home, any other properties, bank accounts, household and personal items including furniture, paintings, jewellery, any cars/caravans or boats, money owed to the deceased such as wages and any payments from life insurance or pension policy owed upon death. Assets are the starting point when valuing an estate and the home is often the most valuable asset.

Value of gifts given: you will need to work out the value of any gift given to the deceased before they died. Gifts will only count towards the overall value of an estate if they were made in the seven years before the person died and the value is over £3000.

Gifts that the deceased benefitted from before they died will also count towards the value of an estate. Any gifts made to charities will not be liable to inheritance tax. A good way to check for gifts is looking through bank statements, financial documents and then recording the value and date of when the gift was made.

Outstanding debts: you will need to check records for debts from when the person died, to include things like mortgages, loans, credit cards, and liabilities such as household bills or work not yet paid for such as tradesmen. You will need to work out the value of any outstanding debts and tell HMRC when you notify them of the estate value. You should not include the debts within the estimated value.

Who can help with valuing an estate?

When it comes to valuing an estate, a local estate agent can provide a valuation in some circumstances for lower priced properties under £325,000. However, it is generally recommended that best practice is to seek a Chartered Surveyor to undertake this task, this will ensure that HMRC approves the valuation.

In some cases, if a Chartered Surveyor has not been instructed for the valuation, HMRC may reject the valuation and request a new one and so often, it is advisable to seek a Chartered Surveyor in the first instance.

How to value assets across a deceased’s estate

A person’s assets are made up of any possessions they had at the time they passed away.

This includes:

• Property
• Savings
• Personal belongings
• Shares
• Private pensions

Valuing property

Properties should be valued by an estate agent, and this can usually be done for free using either a local estate agent or an online service such as Love Your Postcode. If the estate is likely to be worth more than £325,000, it’s recommended that you pay for a valuation from a Chartered Surveyor.

Savings

Savings from bank accounts can be managed by obtaining statements from the bank directly once the bank has been provided with a death certificate and notified for the death. The bank will then usually freeze the accounts until a grant of probate has been awarded. If for example, the deceased person held money in a joint bank account, the money in that account would remain with the surviving joint owner on the account and so these savings would not be included in the overall value of the estate.

Personal belongings

With personal belongings, the best way to work out their value is to start with possessions that hold a high value, such as jewellery or vehicles. HMRC recommends that any possessions with an estimated value over £500 should be valued by a professional, whereas other items such as books or clothing can be valued based on estimates from the sale prices of similar second-hand items.

Shares

When a person has died and leaves behind shares, these shares will usually transfer to any beneficiary named in the Will of the deceased and this will be managed by the chosen Executor named in the Will. If the shares have not been left to any beneficiary or there is no Will, then Letters of Administration must be obtained so that the shares can be managed by a third party.

Private pensions

When considering private pensions, there are areas to consider when working out their value and how this contributes to the overall value of the estate. It first depends on what type of private pension the deceased had, whether this was a defined contribution or a declined benefit pension.

Each of these two areas have their own sets of conditions that need to be checked when working out the value. It is also advised to contact the pension provider directly as they will often have their own conditions and benefits as part of the pension scheme that was in place.

Defined contribution pensions: if the deceased has died before they reached 75 and did not draw from the pension, this will be passed to the beneficiaries named in the will, tax-free. This can be taken as a lump sum or invested. If the deceased has died after their 75th birthday and has taken out from their pension as a lump sum, this will be counted as part of the estate, but if the deceased used a drawdown payment method, beneficiaries can claim what is left in the pension tax-free. If the deceased has died after their 75th birthday, beneficiaries will need to pay income tax on any pensions left behind.

Defined benefit contributions: these relate to the salary of the deceased and years of service. If a person dies before retiring, the pension will pay a lump sum worth between 2-4 times the salary. If the deceased was younger than 75 at the time of death, this payment will be tax-free for the beneficiaries. If the deceased had already retired, this type of pension will continue to make payments to a spouse, civil partner or dependent, this will depend on the pension providers rules.

Valuing jointly owned assets

Any assets that are owned jointly should be valued by working out the actual value and then dividing by the number of people who own the asset, minus 10%. So for example, if a person owned a property with one other person, and it was valued at £100,000, the valuation would be:

£100,000 ÷ 2 = £50,000

90% of £50,000 = £45,000

This process works slightly differently in Scotland, with £4,000 taken off the initial calculation before dividing by the number of owners. So, for the same circumstance for a property in Scotland, the valuation would be:

£100,000 - £4,000 = £96,000

£96,000 ÷ 2 = £48,000

Despite automatically transferring to the other account holder, this valuation process is also used to determine finances held in a joint bank account.

Valuing gifts as part of an estate

Gifts given away by the deceased up to seven years before their death may be liable for inheritance tax. This law is in place as it prevents people from passing on significant assets to a family member or friend shortly before their death, in a bid to avoid inheritance tax. An annual ‘gift allowance’ of £3,000 means that any gifts given up to this value won’t be subject to inheritance tax, but anything over this amount will be liable. In addition, certain gifts aren’t subject to inheritance tax, although they depend on a few conditions, and these include:

• Gifts valued at less than £250
• Except when given to someone already in receipt of a gift over £3,000
• Wedding gifts
• Must be made before the wedding
• Must be less than £5,000 if given to a child
• Must be less than £2,500 if given to a grandchild or great-grandchild
• Must be less than £1,000 if given to another relative or friend

Outstanding debts

Debts aren’t subtracted from the value of an estate, but you’ll still need to tell HMRC about them when informing them of the estate’s value. Typically, there are two types of debt you’ll need to account for:

• Loans
• Liabilities

Loans can include mortgages, credit card bills and overdrafts, while liabilities refer to money owed for services that have been delivered but not yet paid for (e.g. electricity bills).

Why are valuations important for a deceased’s estate?

Valuations are essential when organising a deceased’s estate, you will need to have the estate valued before probate can be dealt with. However, you will also be responsible for notifying HMRC of a person’s death and the value of their assets held within their estate, sometimes the HMRC can reject valuations if not provided by a regulated body such as a Chartered Surveyor.

It is important that valuations are completed so that the remaining estate value can be estimated and then divided amongst beneficiaries in accordance with the deceased’s Will.

In summary

Working out the value of an estate can be a lengthy process, but by following the proper advice and seeking advice where necessary, you can ensure that it’s a relatively painless one.

For more information on executing a Will, read our handy FAQ guide for executors.