What Is the Difference Between Probate Value and Market Value?

When managing a loved one’s estate, understanding the various financial and legal elements can feel overwhelming. Among the key concepts you will encounter are probate value and market value - two terms that are often confused but which have very different implications.

While they may seem similar at first glance, these values serve different purposes and play distinct roles in the administration of an estate. Probate value is a key figure used for tax purposes, specifically for calculating Inheritance Tax (IHT), while market value represents the price an asset could fetch in the current market. Understanding the difference between these values is essential for executors, beneficiaries, and anyone involved in estate management.

In this guide, the wills and probate solicitors at Percy Hughes & Roberts explore what probate value and market value mean, how they are calculated, and why they matter. If you have any questions we have not answered, our expert Wills, Trusts & Probate solicitors are happy to speak to you regarding your query and provide the legal services you need. You can contact us by completing the enquiry form below or by calling 0151 666 9090.

What Is Probate Value?

Probate value refers to the estimated value of a deceased person’s assets on the date of their death. This valuation is required during the probate process to determine the total worth of the estate and calculate any potential IHT liability.

Probate value provides HM Revenue & Customs (HMRC) with a snapshot of the estate’s value to ensure that taxes are calculated fairly and accurately. It includes all significant assets in the estate, such as:

• Property and land
• Savings and investments
• Jewellery, antiques, and collectables
• Vehicles
• Business interests

Accurately calculating the probate value is a vital step in the estate administration process as it provides clarity for Inheritance Tax purposes, and enables the fair and transparent distribution of assets among beneficiaries.

What Is Market Value?

Market value refers to the price an asset - such as property, vehicles, or valuables - could reasonably achieve if sold on the open market at a specific point in time. Unlike probate value, which is fixed at the date of death, market value reflects current market conditions, demand, and other external factors that can influence an asset's worth.

For example, the market value of a property may fluctuate due to:

• Changes in the local property market
• Economic factors, such as interest rates or inflation
• The condition of the asset (e.g., property renovations or wear and tear)
• Buyer demand and competition

This figure provides a current and practical estimate of an asset’s worth, making it essential for informed decision-making during the sale or distribution of estate assets.

Key Differences Between Probate and Market Value

While probate and market value are both essential in estate management, they serve distinct purposes and are calculated differently. Understanding these differences is crucial for executors and beneficiaries alike when managing a deceased person's estate.

Here are a few ways the two are different:

Purpose

• Probate value: Used to calculate IHT and provide HMRC with an accurate assessment of the estate’s worth on the date of death.
• Market value: Determines the current selling price of an asset on the open market, reflecting real-time conditions and buyer demand.

Timing

• Probate value: Fixed as of the date of the deceased’s death, offering a historical snapshot of the estate’s value.
• Market value: Reflects the asset’s worth at the time of sale or valuation

Method of valuation

• Probate value: Sometimes requires professional valuations, such as those from chartered surveyors or RICS-registered valuers, with adherence to HMRC guidelines.
• Market value: Often assessed by estate agents or probate property valuation experts based on local market trends, recent sales, and property features.

Factors considered during valuation 

• Probate value: Focuses on the intrinsic value of an asset, such as its structural integrity, age, and condition at the time of death.
• Market value: Takes into account external factors, including economic conditions, buyer competition, and local market trends.

This distinction is crucial when valuing estates, as using the wrong valuation could lead to disputes with HMRC or complications during the sale process. Executors often seek professional advice from estate agents, chartered surveyors and solicitors to provide accurate probate and market valuations before selling property or calculating Inheritance Tax.

When Do the Values Differ?

While probate value and market value can sometimes align, there are instances where they differ significantly due to external factors and the timing of the sale. Understanding when and why these differences occur is important for managing the estate effectively and avoiding unexpected tax implications.

Fluctuations in the property market

The market value of a property can increase or decrease based on:

• Local housing demand and supply.
• Economic factors such as interest rate changes or inflation.
• Seasonal trends in the real estate market.

For example, a property valued for probate at £300,000 might sell for £350,000 a year later due to a local property boom, or for less if the market declines.

Time between valuation and sale

The probate value is fixed at the date of death, whereas the market value reflects conditions at the time of sale. Over time, changes in housing market trends, asset condition, or buyer interest can cause the actual selling price to differ from the estimated probate valuation.

Condition of the asset

The condition of a property or item at the time of sale can affect its market value. Renovations or improvements after the probate valuation can increase the market value, while neglect or disrepair can lower it.

Capital Gains Tax considerations

Executors and beneficiaries also need to be aware of tax implications if the two values do not align. If the market value of an asset exceeds its probate value at the time of sale, beneficiaries may be liable for Capital Gains Tax on the increase. For example, a property valued at £250,000 for probate but sold for £300,000 could result in a £50,000 taxable gain.

Tips for Accurate Valuations

Accurate valuations are essential when managing an estate, as they are required for Inheritance Tax reasons, fair asset distribution, and the avoidance of disputes or penalties. Engaging qualified professionals is a critical step, as an incorrect valuation can have significant consequences. For example, overreporting the probate valuation for a property can mean you pay more Inheritance Tax than you legally owe.

For probate valuations, using a chartered surveyor or RICS-registered valuer can help ensure compliance with HMRC guidelines and protects against potential challenges. For market valuations, consulting experienced estate agents or specialists with local expertise and understanding of current market conditions can provide a realistic and thorough valuation.

Comprehensive record-keeping is also crucial. Executors should maintain professional reports, written estimates for the value of personal belongings, and evidence of comparable sales for properties or valuables. These records can resolve disputes and support the estate’s case if HMRC raises any questions or concerns.

You can read more about how to properly value an estate here - Does A Grant Of Probate Show The Value Of An Estate?