The UK inheritance tax rate stands at a whopping 40% of all value over £325,000. It is therefore not difficult for a property owner to exceed this amount in the South of England. There’s no sign of this rate falling any time soon, making the implications of chattels and inheritance tax essential reading.
Capital Gains Versus Inheritance Tax
The Association for Chartered Certified Accounts ACCA draws a clear line between the two. There is no distinction between wasting and non-wasting chattels in a deceased estate they say. A chattel is a chattel when we are dealing with probate and RICS valuations. There’s no way out of that!
Drawing the Line under Inheritance Tax
Personal chattels are possessions belonging to the deceased at their time of death, or donated by them within the previous seven years. UK Inheritance and Trustees’ Powers Act 2014 defines these possessions as:
“Tangible movable property, other than any such property which:
(a) Consists of money, or securities for money, or
(b) Was used at the death of the intestate solely or mainly for business purposes, or
(c) Was held at the death of the intestate solely as an investment.”
Was This Solely Investment or Transport Too? © Avery Associates
Collectibles, including paintings, furniture, coins, stamps, silverware, jewellery etc. are therefore chattels (unless locked away in a safe) and subject to inheritance tax.
Exemptions Under This Blanket Rule
The HMRC Guide to Completing Your Inheritance Tax Account provides the following guidance, for exemptions and reliefs from 1 January 2022, beginning at Section 93:
Exemptions and Reliefs from Prescribed Assets
Most of the concessions apply to particular assets. The net amount of exemption is the value of the property less any liabilities, including those undertaken to acquire, enhance or maintain it. However charity exemptions may apply to the entire estate.
Assets Held in Trust Where Trustees Pay Now
Trustees of assets held may choose to pay inheritance now, or later. However, this concession is limited to deposits of up to £5,000 in friendly societies, and industrial and provident societies prior to 1 March 1981. As well as National Savings certificates and accounts.
Assets Held in Trust Where Trustees Pay Separately
This information must form part of the reconciliation of chattels and inheritance tax for purposes of calculating the entire value of the estate. However, HMRC will bill inheritance tax on this value separately to the trustees for their attention.
Heritage Firearm with Sentimental Value © Avery Associates
Charitable Gifts, Chattels and Inheritance Tax
The inheritance tax rate reduces by 4% if the deceased bequeathed at least 10% of their estate to a qualifying charity. This may include chattels, financial investments, or a combination of qualifying assets.
Strategies Where Value of Chattels is High
It can happen that chattels contribute a significant amount to a deceased estate, and cause a high inheritance tax bill. Although a surviving spouse or legal partner suspends this obligation, until they pass when the tax falls due.
However it may happen they decide to hand some chattels on to other people while they are still alive. Should they do so within two years of their partner’s death, then the law treats those gifts as donations out of the deceased partner’s estate.
One obvious workaround would be to defer the gift until the two-year period has elapsed. However, at that point the transfer becomes a potentially exempt transfer that will take seven years to fully prescribe.
Valuing Chattels for Inheritance Tax Purposes
The chargeable value of assets in a deceased estate must be market-linked under the provisions of UK inheritance tax law. This means it shall be what might reasonably be expected at the time of the deceased person’s death. Moreover this specifically includes all their household and personal chattels within very specific guidelines.
- Individual items of jewellery worth £1,500 or more must be separate items on the schedule.
- Vehicles, boats and aircraft must also appear there. This includes, but is not limited to vintage and classic cars and motorcycles.
- All antiques, works of art and collections must appear on the list. This includes among others antique furniture, paintings, sculptures and porcelain, collections of books, stamps, coins, medals and wines.
- The total value of all other household goods not appearing elsewhere on the schedule also required declaration.
Real Value in the Strangest Places © Avery Associates
Accurate Property and Chattel Valuations
It follows that the executor, and principal heirs to an estate find themselves on a knife edge between making honest declarations, and keeping inheritance tax as low as legally possible. Jeffrey Avery Associates offers a service to value everything professionally, taking account of market fluctuations.
In this regard it becomes essential to remember that insurance values are seldom an accurate guideline. Whereas professional probate valuations inevitably add value to any submission to a tax authority.
