The word “inheritance” is usually taken to comprise a house, cash or investments and when lifetime gifts are made to reduce inheritance tax (IHT) the focus is on giving away assets of this nature. However, additional value might well lie in a person’s personal effects; if emotional value is considered, personal effects are often the items in an estate that give rise to the most acrimonious disputes but real financial worth may also lurk in these more unexpected places.
HMRC is alive to the possibility of personal effects having taxable value and when making a return of assets in an estate subject to IHT it is necessary to complete a form giving details of all personal effects owned by the deceased person. As with all other assets in the estate, the personal effects should be valued at open market value by a qualified valuer; long gone are the days when a value submitted for probate purposes was some way below what the item could expect to fetch at auction.
Even the most unlikely items can have value. For example, collecting and wearing vintage clothing is now very popular. If Granny was interested in fashion and always looked smart, you may find vintage clothing tucked away from 30 or 40 years ago that can now be sold via online auction sites, vintage clothing stores or even through specialist auction rooms for the most valuable pieces. Before sending off suitcases of Granny’s clothes to Oxfam, it’s worth spending a little time checking labels in case there’s a couture 1920s evening gown there worth thousands-or even worthy of a place in the V & A.
If Granny was more of a bookworm than a fashion leader, it’s worth taking time to check her collection of books as, while many will be destined for Oxfam, there may be the odd first edition lurking there. Books do not necessarily have to be old to have value: a set of deluxe first edition Harry Potter books is currently for sale on a well known online auction site for £1450.
Other personal effects, such as jewellery, paintings, vintage cars and antique furniture may also have some value so it is advisable to think carefully about how these are to be disposed of in your Will. One of the recommended methods of disposal is a gift of your personal effects to your executors to distribute according to a memo that you leave with your papers, enabling the memo to be updated without changing your Will. This method also has the advantage of enabling some privacy over the identity of who receives which of your lovingly treasured personal items.
If your personal items are valuable it is worth considering lifetime gifts to reduce the IHT payable on your death. Care needs to be taken to ensure an unexpected capital gains tax bill is not triggered, and that you do not wreck the inheritance tax efficacy of the gift by retaining use of the vintage car or by continuing to hang the painting in your home. There are ways of achieving a tax efficient gift while retaining use of your item and if you are interested in hearing more about these then please do contact us.