How do you value a property for probate?

Executors are usually handed this number casually, by someone who is hoping to sell the house. It then goes on to decide the inheritance tax, the base cost for capital gains tax years later, and whether HMRC opens a conversation about the estate at all.

It is also the one figure in the whole process the executor chooses. Everything else is arithmetic on top of it.

What follows is the test HMRC actually applies, who checks the answer, when a free appraisal is enough and when it is not, and what can be recovered if the property later sells for less.

What does HMRC actually mean by probate value?

Section 160 of the Inheritance Tax Act 1984 sets the test, and it is narrower than most people assume. The value is the price the property might reasonably be expected to fetch if sold on the open market at the date of death.

Three things follow from that wording. It is the value on the day the person died, not the day you apply for probate and not the day it sells. It assumes a proper sale, so a quick-sale or distressed figure is not the right number. And it is a single figure the executor must be able to justify, not a range.

Who reviews the figure, and what happens if they disagree?

HMRC does not assess property values itself. It refers them to the Valuation Office Agency, whose district valuers hold the sales data for the area and will compare the figure against genuine comparables.

If they disagree, they open a negotiation with the executor. That is not an accusation, and it is routinely settled. What changes the position is evidence: a written valuation that states its basis and its comparables is something a district valuer can engage with, and a verbal figure from an agent hoping for the instruction is not.

Where a valuation is found to have been careless or deliberately understated, penalties apply on top of the tax, and the executor is the person they apply to.

Is an estate agent valuation enough for probate?

Sometimes, and it depends entirely on what the number is being asked to do.

• Estate agent appraisal. Usually free, usually quick, and normally given as a marketing figure rather than a valuation. Common practice is to take three and use the middle one. Reasonable for a modest estate well under the threshold, thin evidence if HMRC asks.
• RICS Red Book valuation. A written valuation by a RICS registered valuer, prepared for inheritance tax purposes and stating the basis used. Typically a few hundred pounds. It is evidence, and it is what a district valuer engages with.

For an estate comfortably below the inheritance tax threshold with an ordinary house on an ordinary street, three agent appraisals are proportionate and widely accepted.

The moment inheritance tax is in play, the calculation changes. The valuation stops being an administrative step and becomes the basis of a tax return the executor signs.

When is a RICS valuation worth the money?

Four cases, and in each one the cost of the valuation is small against what turns on it.

• The estate is near the threshold. If the valuation is what decides whether inheritance tax is payable at all, the cost of a formal valuation is trivial against the consequence of getting it wrong.
• The property is unusual. Listed buildings, land with development potential, agricultural property, anything with no clear comparables. Estate agents price what they can sell; these need someone who can justify a figure.
• It is jointly owned. A share in a property is worth less than the same fraction of the whole, and the discount has to be argued rather than assumed.
• It will be held for a while. Where the property will not sell quickly, the probate figure will be doing work for years, both for inheritance tax now and capital gains tax later.

How is the property reported to HMRC?

Land and property go on form IHT405, which accompanies the IHT400 account. It asks for the address, the tenure, who owned it and in what shares, the value claimed, and who provided that value.

Excepted estates are the common exception. For most deaths on or after 1 January 2022, where no inheritance tax is due, the values are reported as part of the probate application and no separate account is filed. The valuation still has to be right, it simply reaches HMRC by a shorter route.

The inheritance tax calculator estimates whether the estate is in that position before you decide how much to spend on a valuation.

What if the property sells below the probate value?

The estate may be able to reclaim inheritance tax on the difference. Form IHT38 claims loss relief on the sale of land where a property is sold within four years of the death for less than the value reported.

Three conditions catch people out. The sale cannot be to a beneficiary of the estate, or to their spouse, civil partner or children, which rules out the family buying the house between themselves. The drop has to be more than the lower of £1,000 or 5% of the value on death. And the claim covers every interest in land the estate sells in the period, so a loss on one property is netted against a gain on another rather than claimed on its own.

The fourth year is a loss-only extension. A sale in years one to three counts either way; a sale in the fourth year counts only if it did not exceed the value on death.

It is worth knowing before agreeing a price, because a sale that looks disappointing may be partly recoverable. The mirror image is capital gains tax, where selling above the probate value creates a gain rather than a reclaim, and the probate property FAQ sets out how the two taxes differ.