Valuing lifetime gifts

[probate_slave]

After my late mother moved into a care home 7 years ago we asked an auctioneer to value the contents of her house prior to selling it. Each item was given a value range, eg £200-300. Half of the items were then sold at auction and the other half given away to family and friends.

Simplifying slightly, of the items sold the total mid-range estimate was £10k, the total hammer price £8k, and the net amount received (after commission, insurance, repeat entry fees etc) £6k.

So, for the items gifted, 60% of their mid-range auction estimate would seem to be a fair value to use for IHT403, representing the loss to the donor. Will HMRC accept this?

At the same time, some other things (furniture, old clothes, ornaments) were not valued but given to three UK charities. We weren't aware of the need for receipts and valuations to satisfy IHT403; we assumed she had the right to give her own stuff to charity without keeping records. What should we do?

[AGoodman]

There are two factors involved here. First, probate value is the price somebody would be willing to pay, so you can't deduct the cost of sale (e.g. auctioneer fees).
The other aspect is discounting on the basis that your valuer overvalued the items (because you only realised 80% of the value he put on them). That's in the lap of the gods as you are presenting a valuation but saying that it is wrong. It would be unusual.

On the gifts to charity, just put in a fair guess. The value makes no difference to IHT as it is exempt anyway. HMRC won't ask for receipts.

[probate_slave]

Thank you so much for your full and very clear reply, Mr Goodman.

I understand that commission isn't deductible on the sale of household goods after death. But can I possibly check that, for valuing a failed PET, the "price somebody would be willing to pay" really overrules the principle of "loss to donor"?

Incidentally, Gurr Johns gave a £21k probate valuation on my father's death in 2010 to the very same items that were sold above for £8k gross in 2017. Therefore I am hoping that HMRC might accept that over-valuation exists, particularly where we have proof of it in the sales actually made.

[AGoodman]

To answer your question, they are the same thing. If somebody would be willing to pay £1,000 for an asset, then that is its value to the owner while they have it. The value to the owner is not limited to the net proceeds they would obtain on a sale. If the owner gave it away, their estate has reduced by £1,000.

[probate_slave]

Thank you for clarifying that, Mr Goodman.

It feels a little unintuitive when there is no practical way my mother could link up with 30 distinct buyers of the items sold, nor with buyers of the 25 items gifted, other than through an auction. But I shall certainly take your advice, which is hugely appreciated.