Why Estates Overpay Inheritance Tax on House Contents, and How Executors Can Avoid It

A feature in The Times this week gathered readers' accounts of acting as executors, and one detail stood out to anyone who values estates for a living. One executor sold the family home, together with antiques and artworks, for around £20,000 less than the figure that had been given to HMRC for inheritance tax. HMRC declined to amend the bill. The estate paid tax on money it never received.

Nothing in that account is unusual. It is the predictable result of how most estates approach the valuation of house contents, and it is avoidable.

Market value, not insurance value

The figure HMRC requires for inheritance tax is open market value at the date of death, in plain terms what the items would actually fetch if sold. Many executors instead reach for the numbers closest to hand, an insurance schedule, a figure a relative once mentioned, or a retail price seen online. Insurance valuations in particular are calculated on replacement cost, which for jewellery, silver, watches and furniture can sit at several times the realistic sale value.

Submit those figures and the estate pays inheritance tax at 40 per cent on value that does not exist. Underestimate instead, and HMRC can challenge the account and add interest. Neither position is one an executor wants to defend, and the safe ground between them is a properly evidenced valuation.

A valuation prepared for HMRC

A formal probate valuation is carried out under Section 160 of the Inheritance Tax Act 1984. Every item of consequence is assessed at open market value by specialists who handle those categories at auction week in, week out, and the result is a written report prepared for submission with the estate's inheritance tax account. HMRC is markedly less inclined to question a professional Section 160 valuation than a set of estimates, and if questions do come, the executor has an expert report and an expert to stand behind it.

You do not need probate to have contents valued

Several readers in the Times piece described a circular trap, being told they could not obtain valuations without probate, while being unable to apply for probate without the valuations. Whatever may be true of banks and investment firms, it does not apply to the contents of a property. A qualified valuer needs no grant of probate to inspect and value chattels. The valuation properly comes first, because its figures feed the inheritance tax account that precedes the grant. Executors are often relieved to learn that this part of the process, at least, can simply be booked.

The six month clock

Inheritance tax falls due six months after the end of the month of death, after which HMRC charges interest, currently at a rate that concentrates the mind. Executors interviewed by The Times described paying in instalments at 7.75 per cent while property and contents waited to sell. The practical lesson is to establish accurate values early. A contents valuation can usually be arranged within days of first contact, a home visit at a time that suits the family, a room by room assessment, and a written report shortly afterwards.

If items are to be sold

Where the estate intends to sell contents, an auction house that has already valued them can carry the same items through to sale, with proceeds accounted to the estate. In some circumstances items can be prepared for sale before the grant is issued, which we have written about separately in our guide to selling items before probate is granted.

How Aubreys can help

Aubreys Auctioneers provides formal probate valuations across Surrey and London from our saleroom at Loseley Park, Guildford and our office in Mayfair. Fees are fixed and confirmed in writing before any work begins, from £295 plus VAT for a one to two bedroom property, £395 plus VAT for three to four bedrooms, and £495 plus VAT for five to six bedrooms, with larger or more complex estates quoted individually. Our probate specialist can be reached directly on 07939 133427, or through either office, for an initial conversation without obligation.