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Valuation (Estate)

Also known as: Estate Valuation, Asset Valuation

Definition

Estate valuation is the process of determining the total value of a deceased person's assets and debts at the date of death, required for probate applications and Inheritance Tax calculations.

This critical first step in estate administration establishes whether Inheritance Tax is due and provides the foundation for the entire probate process.

What Does Estate Valuation Mean?

Estate valuation establishes the total value of everything the deceased owned minus what they owed, calculated at the exact date of death. Under the Inheritance Tax Act 1984, Section 160, assets must be valued at "open market value"—the price each item would reasonably fetch if sold on the open market at that specific time. This applies to all assets: property, bank accounts, investments, personal possessions, business interests, and debts owed to the deceased. Equally important, you must deduct liabilities including mortgages, loans, credit cards, and funeral expenses. The resulting net estate value determines if the £325,000 Inheritance Tax threshold is exceeded.

The executor or administrator is responsible for conducting the valuation and faces personal liability for careless errors. Different asset types require different valuation methods. Bank accounts and pensions require exact balances from providers at the date of death. Property typically needs estate agent estimates for smaller estates or RICS surveyor valuations for taxable estates. Items under £500 can be reasonably estimated, but HMRC strongly recommends professional valuations for items over £1,500. Vehicles use online valuation tools, while shares and investments use the market value on the date of death or nearest trading day. The valuation determines which form you complete—IHT205 for excepted estates (which allows estimates) or IHT400 for taxable estates (requiring exact values). You must complete the valuation within 12 months of death, with any tax due within 6 months to avoid interest charges.

Accuracy is critical because HMRC can investigate and impose penalties up to 30% of additional tax due for careless valuation errors. A common trigger for HMRC investigation is when property sells for significantly more than the probate value shortly after death. Chartered surveyors provide defensible valuations backed by professional indemnity insurance. The same values serve for both Inheritance Tax and Capital Gains Tax base cost calculations. Professional valuation costs are estate expenses paid from estate funds, not personal money. Executors remain personally liable for tax shortfalls resulting from careless valuation errors. When in doubt, professional valuations provide peace of mind and protection against penalties.

Common Questions

"When do you need to value an estate?" You must value an estate when someone dies, before applying for probate. The valuation is required to complete Inheritance Tax forms (even if no tax is due) and to determine if the estate exceeds the £325,000 Inheritance Tax threshold. You need the valuation before submitting your probate application.

"What is the correct date for estate valuation?" All assets must be valued at their open market value on the date of death. This means the price each asset would reasonably fetch if sold on the open market at that specific time, not the price you might get if you sell it months later or what you paid for it originally.

"Do you need professional valuations for everything?" Not always. For bank accounts and pensions, contact the provider for exact figures. For items under £500, you can estimate values. However, HMRC strongly recommends professional valuations from RICS surveyors for property and from specialists for items worth over £1,500, especially if the estate is close to the Inheritance Tax threshold.

Common Misconceptions

Myth: You can use the asking price when selling the house as the probate valuation.

Reality: The probate valuation must be the realistic open market value at the date of death, not an optimistic asking price you set months later. Using an inflated asking price leads to overpaying Inheritance Tax. HMRC requires the price the property would reasonably fetch if sold at the date of death.

Myth: If the estate is under the Inheritance Tax threshold, you don't need accurate valuations.

Reality: Even for excepted estates using form IHT205, you still need reasonable valuations. If you're careless and the estate later proves to be over the threshold, HMRC can impose penalties of up to 30% of the additional tax due. Executors are personally liable for errors.

  • Probate: The legal process that cannot begin until estate valuation is complete and Inheritance Tax forms are submitted to HMRC.
  • IHT400: The detailed form used to report estate valuations for taxable estates, requiring exact values rather than estimates.
  • Inheritance Tax: The tax calculated based on estate valuation, charged at 40% on amounts exceeding the £325,000 threshold.
  • Executor: The person legally responsible for conducting the estate valuation and personally liable for careless errors.
  • Grant of Probate: The legal document that cannot be issued until estate valuation is complete and any Inheritance Tax is paid.
  • Inventory of Assets: The comprehensive list of all assets and liabilities that forms the foundation of the estate valuation process.
  • Estate Administration: The broader process where estate valuation serves as one of the first critical tasks in settling an estate.
  • Administrator: The person who performs the same valuation duties as an executor when there's no valid will.

Need Help with Your Will?

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.