We’ve possibly seen all too many television road shows for there to be any doubt. There are treasures to be found in senior’s homes as they drift to the end of life’s journey. We investigate the relationship between chattels and inheritance tax. Better read on, because there are things you may not know yet.
Inheritance Tax and Chattels of Significant Value
We should look beyond property and investment portfolios, if we want our heirs to benefit as greatly as possible. And that’s because HMRC will grab 40% of all assessed value above the (current) threshold of £325,000. We are not suggesting anything underhand. However, it does make sense not to overlook other assets of significant value. Those other assets go by the quaint medieval name of ‘chattels’, which once referred to the cattle our ancestors kept in the squire’s barn. Nowadays, they include all tangible, movable property under Administration of Estates Act 1925, except for assets that:
- Consist of money or securities for money
- Were used solely or mainly for business purposes
- Or were solely an investment at the death of the intestate
Gent’s Gold Watch Worth a Tidy Sum © Avery Associates
Bequeathing Items of Sentimental and Real Value
Items belonging in the chattels category of interest here include antiques, fine art works, historical memorabilia, period furniture, jewellery, silverware etc. It is quite common – and probably sensible – to bequeath significant chattels to family members or non-profit organizations most likely to take care of them. A testator may also gift these items during their lifetime, perhaps in the hope of avoiding inheritance tax on chattels later. However, several government rules could scupper their attempt.
- Only lifetime gifts, and bequests to UK resident spouses / legal partners are inheritance tax exempt.
- Should the beneficiary pass on the chattel within two years of their life partner’s death, there may be tax implications.
Chattels and Inheritance Tax – Pre-Empting Issues
Depending on the value of a potential estate, it could therefore be worthwhile to assess the value of chattels while the owner is still alive. This will need to be done on the open market basis, as opposed to what a well-meaning lay person may consider reasonable. We strongly recommend against ‘shaving off some value’ on the basis HMRC may never know.
A Fine Grandfather Clock © Avery Associates
Insurance values may have been reasonably accurate when originally determined. However annual adjustments may swing wildly. compared to what’s happening on auction floors. Small values may add up to large amounts, especially in the case of collections! It may be prudent to revalue all items worth over £500 from time-to-time. This might include (a) jewellery, (b) vehicles, boats and aircraft, (c) antiques, works of art or collections, and (d) household and personal goods.
However, in the event an executor having already sold some items, then the default value will be their gross proceeds from the deal. Resolving chattels and inheritance tax is not necessarily a ‘one-of’ exercise. The best laid plans can enter choppy water because some values, especially for creative works can fluctuate quite wildly as fashions come and go. The best chattel values are therefore those recently determined by experts in their field.
Potentially Exempt Transfers and Gifts
Gifting relatives with chattels before we die, may make more sense than handing 40% of the value over as inheritance tax. However matters are not always as simple as that. Consider what happens to the balance where an estate is worth more than of £325,000:
- Married couples and civil partners may donate their entire estate to each other tax free.
- Gifts to children and family are only fully tax free, provided the donor survives for a further seven years.
- If this is not the case, then those gifts become potentially exempt transfers that may qualify for taper relief.
- Donations to registered charities may incur a lower inheritance tax of 36% compared to the 40%.
- Every UK taxpayer has a £3,000 annual tax-free gift allowance, that may be carried over for one year.
- Gifts of businesses and farms may qualify for partial or complete tax relief, under certain conditions.
A House of Distinction © Avery Associates
A Wise Decision Depends on an Accurate Valuation
Gifting children and family before we pass on, may have positive inheritance tax spinoffs if planned fortuitously. Their values also needs to be carefully considered, in terms of the £325,000 threshold. Avery Associates has a core team of valuation specialists with over a century of related experience combined.
- Jeffrey Avery is an inheritance tax specialist with special focus on 20th century designs.
- Alan Darwell is our top art and painting advisor with 45 years London Gallery experience.
- Stuart Billington has thirty-five years’ philately experience focusing on Commonwealth, China and Egypt.
- Clifford Lansbury is a member of Royal Institution of Chartered Surveyors, and probate and insurance specialist.
Speak to the Avery Associates’ specialist team first, if you seek peace of mind, and impeccable service backed by professional indemnity insurance. Be assured of an accurate valuation. Call 002 640 0044 now.
