What happens if you sell a property for less than the probate value?

If you are an executor for the deceased, it is your legal responsibility to assess their assets, value the estate considering any liabilities due, pay any inheritance tax due, apply for probate, and then distribute the estate. Probate is a way of ‘proving’ the Will and being granted power as the executor to fulfil these responsibilities. Particularly where you plan to sell the deceased’s property, a Grant of Probate will be necessary and therefore you must also submit tax accounts to HMRC to realise any inheritance tax liability.

When creating the probate application and tax accounts, you will need to include an accurate valuation of the property. If a property is held as tenants in common with another person, this will be the value of the deceased’s share. It is important to strive for an accurate valuation, and appointing a qualified Chartered Surveyor can be a good way of doing this. Once you have submitted the probate application to the Probate Registry and tax accounts to HMRC, you will be able to pay any inheritance tax due on the estate and set about dealing with the sale.

But, with the fluctuating property market and reticent buyers, sometimes a property can be sold for less than the amount that was submitted to HMRC. In this case, you may have overpaid inheritance tax and should be due a refund.

Luckily, HMRC is equipped for instances such as this. Where you are reporting a decrease in the value of land and buildings, you may be eligible to claim for loss on sale of land relief. This involves an application to HMRC to amend the tax accounts so that the inheritance tax calculation is based on the lower figure. In this instance, if you have already overpaid inheritance tax based on the higher figure, HMRC should issue a refund to the estate.

As with all tax reliefs, there are specific eligibility criteria and there may even be instances where it is more tax efficient not to claim the relief, particularly where the deceased owned multiple properties.

If you would like to speak to one of our expert advisers about the reliefs available for inheritance tax or you would like assistance administering an estate, please contact us at 01622 698000 to speak to a member of the Tax & Estate Planning team.