Is probate necessary?
Valuing a property for probate
You may have a pretty good idea of what houses like the one in the estate are fetching and may be confident of putting in a figure of your own. If the estate is one where IHT (Inheritance Tax) is payable then the valuation of the assets takes on even more importance because tax is paid on the values which you put forward. You may be tempted, as it is human nature, to place as low a value as reasonably possible on items to keep the tax down. Be aware however that the revenue look at the figures and in recent years, even more especially since the recession, they have been very assiduous in checking figures as they have been encouraged by the government that as tax revenues fall they have to collect as much tax as possible. There are also new rules in force about personal liability for the figures put forward so you need to be very careful in this regard.
Professional house valuations for probate
You always have the option to obtain professional valuations of any of the assets in the estate and whilst you may have to pay a fee for this it may well save you time and money in the long run. Any fees for professional valuations are a legitimate expense and are payable out of the estate and not by the executors personally.
It is not a legal requirement to have a professional valuation of a house by a surveyor or valuer though in some cases it may be advisable and well worth paying the fee. HMRC use the services of the District Valuer (DV) for the area in which the property is situated to check the figures you put forward and he/she is an expert valuer with reams of information on comparable property prices and will be in a good position to know whether your valuation is reasonable or not.
If you get involved in a long running battle with the DV over the house value this can take up time and delay the administration of the estate. If you have employed a professional valuer to value the house then if HMRC question that value then the valuer can argue with the DV on your behalf. Remember also that whilst you may save some IHT if you have a low valuation that value is taken as the base value if the property passes into the hands of a beneficiary who may then end up paying more Capital Gains Tax when they come to sell if they cannot use the principal private residence exemption. The balancing act between IHT and CGT is for a tax expert and it is well worth obtaining specialist taxation advice.
Joint tenant or Tenants in Common : How a probate property is owned?
When valuing a house or other property you will have to know the nature of the ownership the deceased had in the property. There is more than one legal way in which you can own a house in this country. The two ways which will concern you are called joint tenancies and tenancies in common.
If the property is held as joint tenants the law says that when one of the joint tenants dies the other automatically becomes the owner of the property by operation of law and this is the case irrespective of whatever the will might say about the property. So if a husband and wife are joint tenants and one dies the other automatically becomes the sole owner of the house. The husband and wife may have thought they could leave their share of the house to one of their children and may have said this in their will but such a clause will have no effect for if they were joint tenants the other becomes the owner.
Tenants in Common
If however they own the property as tenants in common the law does allow each owner to dispose of their share of the house in their will. As a lay executor you may well ask the question – How will I know if they own the house or property as joint tenants or tenants in common? Well the survivor may tell you (but be careful because they may not always be correct in their understanding) but the only way for you to be sure is to look at the deeds. It is imperative that in all cases where there is a house or property involved that you or probably more likely a lawyer on your behalf should check what the deeds say about the ownership of the property. It is the deeds which count not what the parties think is the situation.
The simple solution in all cases is to ask a lawyers advice as to the type of ownership which affects the property.
Valuing property which is jointly owned.
If the property is held as joint tenants or as equal tenants in common the shares of each owner is half of the whole BUT a percentage deduction is also allowed on top of this because no one is likely to want to buy a half share in a house in which someone else may well be living. The usual deduction which is allowed is 10% but if the other co-owner also had a right at law to go on living in the property (again you will need legal advice to clarify if this is the case) then the deduction is 15%. So if the house was worth £300,000.00 a half share would be £150,000.00 or £135,000.00 or £127,500.00 if the 10% or 15% deductions were available. Please also note that no percentage deductions are allowed if the owners were spouses or civil partners because of rules concerning what is called ‘related property’ but they would be available between other relatives or strangers. As the house is often the main asset in the estate it is important that executors understand fully the situation of legal ownership and DIY Probate’s advice is that you should always seek professional help and advice where a property is concerned.
Valuing other estate assets
Where there are unusual or specific items of value in an estate the rule of thumb is always to employ a professional valuer. Paintings and collections of valuables are obvious examples as are vintage cars and even cherished number plates. HMRC employ experts in all these fields and they are continuously on the lookout for estates which contain items of high value.
Probate and Shares
If there are shares in the estate these need to be valued. If IHT is not payable on the estate HMRC will accept your reasonable valuation taken from the usual sources such as those newspapers which carry stock value tables. If IHT is payable HMRC naturally look more carefully at valuations and much like the situation with houses they have experts who will check share valuations. Your choice again is whether to try and value the shares yourself or employ an expert and pay their fee, which would come out of the estate as a legitimate expense of administration.
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