How to value land and buildings for Inheritance Tax

When someone dies, any land and buildings they own - or sometimes live in rent-free - are part of their estate for Inheritance Tax. To make sure you get an accurate valuation, you should use a professional valuer. The valuation should reflect the value at the time of death.

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Types of property to include in your valuation

When you work out the value of someone's estate you'll need to value any property they owned. The types of buildings and land that you may need to value could include:

  • their home
  • any other houses or flats they owned
  • farms and farm land
  • business properties like hotels, shops or factories
  • other land and buildings - such as woodland, derelict land and lock-up garages
  • any rights that are attached to land, like fishing or shooting rights

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Using a professional valuer

Professionals like property valuers and chartered surveyors specialise in valuing land and buildings for people's estates. HM Revenue & Customs (HMRC) strongly recommend that you use a professional valuer because they'll make sure the valuation is as accurate as possible. You'll have to pay their fees, but you may be able to claim these back from the estate later.

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Getting a realistic valuation for a property's market value

You should ask the valuer to provide a realistic price of a property's market value - the 'open market' value. The valuation should take into account anything that might increase or reduce the value of the property and you should ask the valuer to do this. See more in the sections below.

If you end up with a range of different values it's usually best to use a valuation in the middle of the range.

If the property needs repairs

If the property is in need of repair the valuer should consider reducing the value to take this into account. You could look into what it would cost to do the repairs.

If something makes the property more attractive to buyers

There may be something about the property that makes it particularly appealing to buyers. For example, an unusually large garden, or access to other development land. If the property has features that make it more attractive to buyers then the valuation may need to increase.

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Tax reliefs for properties used in business

There are different types of relief available for different types of property. Depending on what type of property it is and how it's used, it may qualify for:

  • Business Relief
  • Agricultural Relief
  • Woodland Relief

For example, if the deceased person used some or all of the property in their business, it may qualify for Business Relief. This can reduce the amount of Inheritance Tax due.

More about Inheritance Tax Business, Woodland, Heritage or farm Relief

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What if you under-value the property?

Sometimes it may become clear before you apply for probate (confirmation in Scotland) that the valuation was wrong.

For example, if the property was worth £400,000, but you then got several offers of £450,000 for it, it may mean that this amount is a more realistic market value.

If you think the original valuation may have been too low you should ask the valuer to reconsider it. They should take into account the length of time since the person died and what has happened to the property market during that time.

If the property has been under-valued you must write to HMRC to tell them the new value.

Contact HM Revenue & Customs

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What if you over-value the property?

If you sell any land or buildings in the estate within four years of the death for less than the value that you paid Inheritance Tax on, you may be able to claim relief for the loss. To make a claim use form IHT38 Claim for relief - loss on sales of land.

Go to form IHT38 Claim for relief - loss on sales of land

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If the deceased lived rent-free in a property left in a will to someone else

Sometimes a person might live rent-free in a house that's been left in a will to someone else. For example, someone might leave a house to their daughter, but make provision in their will for their wife to live there rent-free for her lifetime. When their wife dies, the house passes on to the daughter.

When this happens it's treated as an 'interest in possession' trust for Inheritance Tax and you'll need to include a valuation of the property when you value the deceased person's estate (in the example above this would be the wife). You should use its market value at the time the person died.

Although the valuation makes up part of the deceased person's estate, any Inheritance Tax due on it should be paid by the trustees.

More about interest in possession trusts and Inheritance Tax

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