Probate is a somewhat-dated legal term referring to the process for closing out estates. However, only the net value will pass to the heirs after HMRC has taken its inheritance tax slice. The value of an estate includes everything the person owned at the time their death, less anything they owed.
How The Value Of An Estate Affects Heirs
Heirs share the net value of an estate, less allowable expenses, probate fees, debt settlements, and payment of any inheritance tax due. The value of an estate plays an important role here as follows:
- A probate application is incomplete without the probate fee, depending on the net value of the estate.
- Assets cannot be distributed to heirs unless inheritance tax (if any) is paid according to net value.
- Valuation may have to drill down to individual assets if these increased in value following death.
- An estate shared in equal parts between heirs cannot close out without knowing the net worth.
The Best Time to Begin Determining Value
Valuing a deceased estate is the first step in applying for probate, once the assets and liabilities are known. Therefore, it follows that valuation should begin as soon as possible. Besides, HMRC expects to start receiving inheritance tax within six months of the death, assuming any is due.
Inheritance Tax On The Worth Of An Estate
UK inheritance tax is a levy the government applies based on the value of the estate of a deceased person. The basic principles are as follows:
- There is normally no inheritance tax due on an estate, if the value is correctly assessed below £325,000.
- This increases to £500,000 if the balance goes to the spouse, civil partner, a charity or a community amateur sports club.
- If a home, or a share in a home goes to children, then the tax-free threshold may also increase to £500,000.
- Any unused tax-free threshold may be credited to the estate of a surviving spouse, or civil partner.
Avery Associates provides a discreet valuation service for land, buildings, and personal possessions, including collectible items such as antiques, jewellery, and art.
Lifetime Gifts and How They Affect Estate Value
Lifetime gifts are assets a deceased person gave away while they were still alive. HMRC offsets the value of these against the inheritance tax-free allowance, although the impact reduces to zero over seven years from the the date of the gift.
However, the following exemptions apply:
- Gifts to spouses, civil partners, qualifying charities, housing associations, and specified allowances.
- Potentially exempt transfers, including gifts made up to 7 years before the person died.
- Gifts of £3,000 or less in any tax year, small gifts of £250 or less, wedding and civil partnership gifts.
- Regular gifts or payments that were part of normal expenditure and made out of income.
Assessment of Individual Liabilities and Assets
Deceased estates typically comprise liabilities, assets, and any lifetime gifts still applying, after payment of any inheritance tax due. An asset’s value, for probate purposes, is what it might have sold for on an open market on the day of death. Subjective or insurance value therefore does not apply, and should be discounted.
Determining The Value Of An Estate for Probate
Assets broadly include property and land, money in bank accounts and other investments, personal possessions (chattels), and any business assets. Liabilities, on the other hand could be financial obligations, or any substantive promises the deceased made.
HOW TO DETERMINE A DECEASED PERSON’S ASSETS
Go through any documents the deceased person left behind, and any information their family and friends may share. With that as background, see what you can discover from the following sources:
- Statements from their pension fund, bank or building society accounts, or financial adviser.
- Contact their employer to establish any back pay, bonuses or profit-share due.
- Any other financial investments for example life insurance, or bonds.
- The Land Registry to determine whether the deceased owned any property.
HOW TO DETERMINE A DECEASED PERSON’S LIABILITIES
Liabilities, for probate purposes, are unfulfilled financial obligations on the deceased, incurred while they were still alive. These debts must be settled before the assets of an estate may be distributed. Information about typical liabilities may be sourced from:
- Local authorities, including council, water and utility bills.
- Credit loan providers, credit cards, and mortgages on property.
- Residential landlords, carers, care homes and frail providers.
- Other service providers not forgetting the funeral home service.
How to Determine the Value of Assets in an Estate
Accurate asset values are essential to ensure speedy acceptance by HMRC, and approval of probate. Avery Associates has been active in the Greater London area since 1978. Our professional property and chattel valuers regularly help executors determine the value of estates. Please call 0800 567 7769 or 0208 640 00 44 for your free quote, without any pressure whatsoever to continue.
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