Valuing Personal Property For Probate – Why Get An Independant Valuation?
How To Value Personal Property For Probate
How To Value Household Contents For Probate
Estimating Value Of Household Goods For Probate
Executors and administrators need to submit an assessment of the total worth of the goods and chattels in an estate to HMRC, as part of the total valuation, so that an assessment of Inheritance Tax liability can be made. The Will itself may also require the valuation of specific items in certain circumstances.
Although chattels and material possessions are usually a small part of the total value of an estate, their valuation can often cause significant practical difficulties, as the determination of their worth can often be subjective, and subject to competing claims both by HMRC and the beneficiaries.
For example, it is common for items to be left to one beneficiary, on the understanding that the monetary value will be gifted to one of the others, which necessitates the valuation of an item as accurately as possible.
Valuing Personal Possessions For Probate
In addition, S. 160 of the Inheritance Tax Act (1984) states that the valuation should reflect open market values at the time of death, and should clearly state that this is the basis on which the net worth of goods and chattels is determined – if this is not stated, and phrases such as ‘valued for probate purposes’ are used, the result may well be that the final figure is officially disputed.
In these circumstances, an independent, expert valuation service which provides an accurate and unbiased assessment of the worth of goods and chattels, based on the correct criteria, is consequently fairer to all parties, reducing delays to probate and possible disputes amongst legatees.
Most estates will consist of hundreds, or thousands of items, which must be assessed when providing a valuation for probate purposes. A non-professional attempting to arrive at a credible valuation will need to look up all the items to identify items of value, which is a time consuming task. An experience valuer, on the other hand, will be able to immediately identify the items that are of significant value, and hence reduce the risk that valuable items are missed, or incorrectly valued. Most ordinary household items have very little worth, but a valuer will instinctively know when he or she sees an unusual or potentially valuable item.
In addition, if HMRC are not satisfied with the valuation, it will be referred to the HMRC Shares and Asset Valuation team (SAV), a bureaucratic process which can delay the granting of probate for up to a year. When the initial assessment is based on the correct HMRC guidelines, the probability of referral is significantly reduced.
Despite generally being one of the smallest parts of an estate, chattels are often the cause of disputes between legatees. In addition, where an executor undertakes the role of valuer, there is a potential conflict of interests, particularly in cases where he or she is also a beneficiary, or where the estate’s value is over the inheritance tax threshold.
Hence, an independent and professional valuation is one sure way of demonstrating impartiality and fairness to all concerned.
Valuation And Open Market Values
Value for probate purposes must be based on the open market value at the time of death. This is defined as “the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may or may not differ in some circumstances.” (Source: Wikipedia)
Open market value should not be confused with trade or retail values, which are appreciably different. One common issue that arises is the basis for valuation, and if terms such as “fair value” or “estimated value” are used instead, this would indicate to HMRC that the assessment may not have been carried out in accordance with official guidelines.
How To Value Household Items For Probate
For art and antiques, the accepted basis for determining open market value is past auction results. Professional valuers have access to very large databases of completed sales, (which are not available to the general public), which facilitates very close comparisons to the item in question. Attempting to value antiques without access to databases is difficult, and may result in either retail or trade values being used instead.
At present, auction prices for many types of antique furniture likely to be found in a person’s home are severely depressed, so the valuation arrived at will probably be lower than that which a non- professional, without access to adequate market information would have made, which will ultimately and legitimately result in lower tax liability.
The most likely consequence of an amateur valuation of goods and chattels is overvaluation, for two reasons:
First, objects which are of significant sentimental value may be considered to be of greater worth then the required open market valuation, and second, most people do not know how little standard household contents are worth. This includes both electrical items, general contents, and furniture. Objects may have been highly valued in the family, but this does not lead to a high open market value.
As previously stated, overvaluation, will result in unnecessary and avoidable Inheritance Tax liability.
Adherence To HMRC Guidelines Concerning Value
HMRC’s official guidance on probate valuation states that items over £500 should be individually listed. However, items of lesser value are still of importance, and cannot simply be ignored. For IHT purposes, ALL goods are taxable.
The easiest way to achieve this is to group low value items together as a single auction lot, usually at a low estimate. Higher value goods are then listed separately, and this will effectively account for all the goods and chattels in the estate.
Inconsistencies In Valuation
Frequently, a house or home of very high value may contain goods and chattels which worth very little, and this inconsistency may, in turn, lead to the valuation being queried. In those circumstances, an independent, professional valuation is also advisable.
Author: Jeffrey Avery