Probate when an estate includes property

Small wooden house with probate tag attachedWhen someone dies there are a number of matters that need to be taken care of. Their death needs to be registered, their funeral arrangements made and their estate dispersed. It’s a difficult time for everyone and a time when a superhero guiding the way can make a real difference.

Dealing with someone’s estate after their death generally involves a process known as probate and depending on whether they left a will, what assets they had and what family survive them can be fairly straight forward with plenty of paperwork or extremely complex with even more paperwork.

Property so often makes up a significant part of an estate these days. The rise in property prices has meant that there’s an excellent chance that the estate might exceed the £325,000 threshold for Inheritance Tax which is paid at 40%.

Yes dealing with probate, inherited property and dispersing an estate can be a real challenge for the individual even when there’s a Will in place.

Who will inherit?

Let’s take a couple of examples to see what sort of issues might be encountered following a death.

Person A has died with 2 properties, one jointly owned with their spouse or civil partner. They have 2 children and have left a will indicating how they would like their estate dispersed.

Person B also owns 2 properties, one jointly owned with their spouse or civil partner. They have 2 children and have not left a will.

While they can work through the process without help this starting point might be the ideal time to do so. Probate accountants such as Berley, have the expertise to support probate applications and the disposal and distribution of assets.

In both cases, the first thing that needs to be calculated is the value of the estate. In the case of person A, this will be done by the executors who are named in the Will. For person B either their partner or children will need to volunteer to become the administrator for the estate.

Their starting task will be to calculate the total value of the estate. Call upon an estate agent to help with the valuation of any property. Get it in writing as you’ll need this later if there are queries from HMRC. you don’t want to find yourself in a situation where there are suggestions of undervaluing to avoid Inheritance Tax or Capital Gains Tax.

Property Valuation

With the value of the estate calculated application for probate can begin.

The probate application process usually takes around 4-8 weeks and will result in either a grant of probate or letters of administration. These are important because they show that you are authorised to deal with the person’s assets and that they can be released by a bank or other financial institution on your authority.

How do you divide an estate?

The next question is how the estate will be divided up and this depends on a number of factors.

Let’s start with the jointly owned property. This would automatically pass to the surviving partner assuming the relationship had been formalised. It would not be subject to inheritance tax.

Then there’s the value of the estate. If it was below £325,000 then it is not subject to inheritance tax.

So for person A, the executors would get to work to divide and distribute the estate in keeping with the wishes of the deceased. If an estate is subject to Inheritance Tax then this will need to be paid upfront from the estate.

Pay Inheritance Tax

There will also be other costs involved. For example, a property may be rented out and continue to raise income for the estate. Such income would then be subject to Income Tax. This kind of issue is why accountants deal with probate as a specialism, as they are also experts in tax matters. Other issues that might call for specialists in both law and accounts could be possible insolvency of the estate, the deceased holding property or other assets outside the UK or a dispute over who was included or not included in the Will.

Meanwhile, the administrators for person B would need to see who would legally be entitled to inherit from the estate. In this case with the surviving spouse or civil partner would stand to inherit the first £270,000 of the estate. After that, the children would stand to inherit a percentage. However, don’t forget that there is still potential for Inheritance Tax (as your accountant would no doubt remind you).

How much have UK property prices increased?

The trend toward rising property prices has pushed up the value of estates that contain property. The average house price in the UK in June 2020 was £237.834. Compare this to the threshold for Inheritance Tax. Passing this limit can make an estate less valuable than initially anticipated by the beneficiaries.

Another often overlooked aspect that will impact the value of an estate is Capital Gains Tax. This is charged at the point of sale when an asset such as property or shares has increased in price since the time of purchase. If the house is your designated home property then it is exempt but any other properties will still incur the charge. In relation to probate, this can mean that Capital Gains Tax is applied to an increase in the value of a property between the deceased passing away and the property being sold.

As house prices in England currently increase by 3.5 each year there is an excellent chance that there will have been an increase in the price of the property between the deceased dying and it being sold.

Do I need a solicitor to get a grant of probate?

When people think of probate they assume that a solicitor is necessary and the only possible source of advice. But it’s not the only way. Getting a clear idea of the processes from GOV.uk is a good idea. Since 2014 accounts have been able to offer probate services independently rather than via solicitor which provides another option. The simple fact is, quite often, a solicitor will probably have to involve to an accountant to assist with all the estate’s financial matters.

If you do decide to call on a professional at this difficult time then it’s good to be aware of how they will work with you. If you have an accountant who you already work with this familiar face might preferable during a difficult time to an unknown solicitor.

But their knowledge of probate will also count for something. You want a source to draw on, particularly when it comes to ensuring that your understanding of the processes and law are correct and not coloured by common misconceptions. For example, they would be aware that ‘common law’ partners do not stand to inherit if there is no Will. Even if the property is considered the family home and they have resided there for many years. Likewise, foster children and step-children are not considered for inheritance in cases of intestacy. And that marriage or remarriage invalidates any previous will that has been made but divorce does not.

When choosing who support you consider the following:

  • Is their physical location important? – While the use of email has made location less relevant consider if resolving the matters of the estate will require regular face-to-face meetings which might more easily be achieved with someone local to you.
  • Expertise – Do they have appropriate expertise to resolve the matter or can they call on others to support as required? An estate with assets still producing income in more than one country is likely to need an accountant, expertise in languages other than English and an understanding of how probate and estate dispersal operates outside the UK. If you stand to inherit a substantial amount you may also need direction in wealth management.
  • Pricing – Consider how the fees are structured and how this will work in relation to the complexity and value of the estate you are dealing with. Berley keeps it simple by offering an hourly rate when supporting such matters.

Dealing with probate and estate dispersal can be trying. Make use of the support route that will be most beneficial to you and allow you to do your duty in carrying out the wishes of the deceased. The team at Berley are on hand, so why not give us a call to discuss a probate situation – 020 7636 9094

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.