Upon your death, the executors of your will or administrators of your estate will often need a grant of probate or a grant of letters of administration before they can collect and then distribute any assets. You won’t be able to sell a house without a grant and many banks and other organisations require a grant before they allow full access to a deceased person’s accounts.
The government states that probate should be granted within 16 weeks after you’ve submitted your application, but in many cases, it can take much longer. Applying for probate can be a complex situation in itself, so it pays to have your affairs in order during your lifetime to enable loved ones to access all the information they need in order to complete the relevant forms.
Applying for probate
You need to apply for probate by filling in an application form, available here. In order to fill the details in correctly, you’ll need to value the size of the deceased person’s estate and this means, ascertaining a correct value for all their assets – i.e. any property, bank accounts, investments, personal belongings, etc. You will also need to consider any chargeable transfers (e.g. gifts or transfers into a trust) that they made in at least the seven years (and in some cases 14 years) preceding their death.
You cannot apply for probate until you have a death certificate. It is always wise to obtain several copies (currently £11 each) as various organisations such as banks, utilities providers, etc may ask to see a copy. You may also need to contact HMRC to report the value of the estate before you can file for a grant.
In order to value the deceased’s estate and find out its value and liabilities, you’ll need to contact the following:
- Banks where they hold accounts
- Lenders, i.e for mortgages, loans, credit cards, etc
- Pension providers
- Financial advisors or other fund managers
- The local authority with regards to any outstanding council tax – you can also pause paying council tax on the property for up to a year as long as it remains empty
- The department of work and pensions
To simplify the process, which can be lengthy and complicated, the UK government introduced the Tell Us Once service. This means you only have to report the person’s death once and all government departments, such as the DVLA, HMRC and DWP, etc will be informed. You’ll be given a unique reference number for this service when you receive the death certificate.
Before using the Tell Us Once service, you need to make sure you have information about the deceased including:
- Their name, birth date, date of death, address, details of a surviving spouse or civil partner, next of kin, and address of place of death
- Driving license
- National Insurance number
- Vehicle registration number
- Details of the local council
- A Blue Badge number if they had one
- Details of any benefits, such as state pension, tax credits, an Armed Forces Pension if they had one or a Compensation Scheme
Valuation of assets
It can be time-consuming trying to find out exactly what assets a person has, which is why planning is always advisable. With many accounts now online, it can be a real struggle if a person dies without leaving details of the accounts they have. It pays to sit down and list all your assets etc, which can be passed onto a professional, such as a solicitor, for safekeeping.
Once you have all the relevant information, you can submit a probate application. This can generally be done online although in some circumstances e.g. you only have a copy of the will or the deceased was domiciled abroad, then the application will need to be completed by post.
If you believe that the deceased has assets that you cannot locate, you can ask a solicitor to do a search. The unclaimed assets register contains records of £50bn worth of unclaimed UK assets.
Valuing an estate where one spouse or civil partner survives
Where there is a surviving spouse or civil partner who is being left everything, probate often isn’t required. Any assets that the deceased owned jointly with their spouse or civil partner will pass automatically to the survivor.
Valuing a property for probate
Most estates include a residential property and its value must be ascertained for probate purposes. You can value it yourself by looking at comparable properties, but it is always best to consult estate agents for an accurate market valuation.
Some estate agents might value a property on the lower side if they know it is for probate reasons because it would reduce the inheritance tax bill, but if it then sells for more, that excess amount will be liable for capital gains tax, which is charged at 28%. You should always ask estate agents to give an open market valuation as at the date of death.
If you sell a property for less than the value you gave to HMRC for inheritance tax purposes, you can claim back the difference as long as you do so within four years of the date of death. To make a claim, you’ll need to fill in an IHT38 form.
It’s always best to get an accurate valuation and if the property is unusual, for example, it’s very old or has development value, then it is best to get a chartered surveyor to do the valuation. This can be expensive but should be worth it in the long run, especially if HMRC raises any questions about the property value.
Everything has to be taken into account when it comes to valuing a person’s estate for probate and that includes their personal possessions. If somebody dies with a house full of furniture, which is usually the case, this has to be taken into consideration, even if you wouldn’t make any money at all if you actually sold it. It can even be a negative figure if you have to pay a clearance company to come and take it all away.
People often come to us and have no idea how to value a house full of possessions, most of which are of little use or value. In those circumstances, it is sensible to make an educated guess. It may be of some assistance to refer to any contents insurance paperwork as those documents usually require the insured to provide an estimated value of the contents of their house. Where there are personal possessions of significant value such as jewellery or works of art then they should be valued separately by a professional.
Inheritance tax and probate
There are certain ‘excepted’ estates where no inheritance tax is due and a full inheritance tax account (IHT400) is not required to be submitted to HMRC. These include:
- Low-value estates
- Exempt estates
- Foreign domiciliaries
Any other estates will be required to prepare and file an IHT400 with HMRC.
The IHT400 is a detailed form in which you’ll need to give HMRC information about the gross value of the estate as well as any debts. Deductions can also be made for any assets that benefit from tax reliefs, such as charitable gifts, gifts to spouses, and certain types of business property.
Any gifts made within seven years of the death may be subject to inheritance tax if they total more than the inheritance tax nil rate band. You can currently give up to £3,000 tax-free every year. Small gifts under £250 are exempt from IHT, as are wedding gifts, gifts to a spouse or civil partner, and gifts made out of excess income.
Any inheritance tax due on lifetime gifts will be payable by the person who has received the gift unless the deceased indicated in their Will that they wish the estate to pay the tax.
If you leave at least 10% of your estate to charity then under current legislation your taxable estate should be taxed at a lower rate of 36%. Otherwise, the current rate of inheritance tax is 40%.
When it comes to residential property, there is an added £175,000 known as the residence nil-rate band (RNRB) exemption. This applies where a residential property is passed down to direct descendants. In the case of a married couple or those in a civil partnership, each person is eligible for the exemption, and any unused percentage is passed onto the surviving partner following the first death.
The RNRB is tapered when an estate is worth more than £2 million and you lose £1 for every £2 over the threshold.
A property only qualifies for RNRB if the deceased lived in it at some point. Only one property in their portfolio can apply and it must be residential.
When valuing an estate for tax and distribution purposes, liabilities such as a mortgage, any loans, etc, must be paid. These will be deducted from the value of the estate for IHT calculations. Other costs such as house clearance, funeral service, etc can also be deducted from the value of the estate.
In the case of a property that still has a mortgage, there could be a policy in place such as mortgage protection, which will pay it off when the mortgage holder dies. If not, the mortgage company might request that the outstanding amount be paid immediately or that the person who inherits the property, takes on the mortgage.
Inheritance tax deadlines
The government requires you to pay IHT by the end of the six months after the person dies. You can pay early before you know the exact amount due to avoid interest charges, this is known as payment on account. If you pay too much inheritance tax, you can claim it back along with interest.
There is also the option of paying inheritance tax in equal annual installments over 10 years on certain assets, including residential property and some shares and securities. You will usually have to pay interest on the installments and the tax must be paid in full once the asset is sold.
Letters of administration
If somebody dies without leaving a will, if the will isn’t valid or if there are no executors named or willing to act, then letters of administration must be applied for.
The rules are strict when it comes to who can be an administrator. If there is a will, you can only apply if the estate was left to you and the executors are not named or are unwilling or unable to act.
Without a valid will, only next of kin can apply to be administrators. There is an order of priority that includes married or civil partners, children, grandchildren, parents, siblings, nephews, nieces, and other relatives.
Unmarried partners not named in the will, aren’t usually granted administrator rights.
Assets that fall outside of probate
There are occasions when you don’t need a grant of probate in order to distribute the assets of the deceased. These include:
- Where the estate comprises cash, furniture, jewellery, and other personal property
- If the estate is owned as beneficial joint tenants, it is automatically passed to the other owner. In the case of bank accounts the bank might wish to see a death certificate in order to transfer the balance to the other account holder
- The amount of money involved is small
- The estate is insolvent
- Depending on the values, certain insurance policies and pension benefits may pay out without the need for probate or letters of administration
- Banks will often release money that is needed to pay for costs such as the funeral and debt payment, etc before a grant of probate is received. This is dependent on the policies of individual banks
Do you need a solicitor?
Plenty of people act as executors of a will without using a solicitor, but it is always best to seek legal advice when it comes to probate valuations and the distribution of estates. This is especially true when the following applies –
- The terms of the will are unclear
- Children under the age of 18 are beneficiaries of the estate
- Money or other assets have been left in trust
- The deceased had assets abroad
- The deceased owned a business
- There is likely to be a dispute over the will
- The estate is of great value and/or complex
Any legal fees for the above can usually be claimed from the estate.
Valuing an estate and obtaining probate can be a complicated and lengthy process. It is made easier if a person gets their affairs in order before death and consults a solicitor to ensure that their estate has been planned in order to reduce the inheritance tax liability. It is important to keep up-to-date and detailed records to ensure that the process of applying for probate is as pain-free as possible for the executors when they come to distribute an estate.
You should revise your will at least every five years, to make sure that it reflects your most current wishes