The Problems Facing A Professional Probate Adviser
The valuation and disposal of household goods and personal possessions can be a minefield for the professional adviser, but there are also opportunities to save significant tax payments. This is particularly so after death. Household goods and personal chattels has a precise and wide legal definition which will cover almost everything found in any home. This definition is contained in section 55(1)(x) of the Administration of Estates Act 1925. The difficulties arise because of the conflicting rules for inheritance tax (IHT) and capital gains tax (CGT) and the fact that chattel valuation is a matter of judgement, not fact, with two different bases – wholesale and retail.
It is now critical that executors and personal representatives obtain a s160 valuation from a qualified and experienced professional valuer (RICS). HMRC’s IHT manual at paragraph 21041 makes this clear. For example it directs that where a valuation is qualified as being made “for probate purposes” or for “IHT purposes” HMRC will query as to whether the correct s160 basis has been used.
Probate Valuations – The Theory
The most common need for a valuation of chattels is when IHT is payable, usually but not always after the death of the owner. Section 160 of the IHT Act 1984 provides that the value must be “the price which the property might reasonably be expected to fetch if sold in the open market at that time…”
Where IHT is payable after death, the personal representatives of the deceased must complete HMRC’s form 400. Supplemental IHT form 407 is specifically for household goods. This form breaks down into four parts –
Jewellery, with a request for individual items valued at £500 or more to be detailed separately.
Vehicles, boats and aircraft.
Antiques, works of art or collections.
There is a specific question on the form as to whether any item in category 4 was individually listed on the deceased’s household insurance policy. If it was the personal representatives are asked to produce a copy of that insurance policy. With regard to items 1-3 the form requests “if you have a professional valuation enclose a copy.”
HMRC has many pages of notes to aid the completion of form 400 and its supplemental forms. The relevant part of these notes indicates “a realistic price is likely to be the value the item might fetch if sold at auction or through the local paper.”
Probate Valuations – The Practice
A s160 valuation will be a wholesale and not a retail or insurance valuation. The s160 valuation is what the item is expected to fetch at auction where the majority of, if not all, the potential buyers will be dealers who expect to sell the item on at a profit after covering their own overheads.
Executors and personal representatives like to save costs and in doing so can make the big mistake of instructing a local antiques dealer to produce the valuation required. That dealer could be unaware of what is needed and produce valuations –particularly for jewellery – that are nearer a retail than an auction valuation. An adviser should remember also to check the deceased’s insurance valuation for any anomalies –if HMRC has a copy of the insurance valuation it will certainly check to ensure that items listed on the insurance policy are in the s160 valuation. If HMRC picks up mistakes it can look to the taxpayer to pay a penalty.
This post is based on an original article written by Peter Nellist of LawSkills