Recently, it was reported that a lucky Berkshire-based surgeon’s son sold a rare Qianlong dynasty Chinese vase at auction, which was left to him by his father and bought in the 80s for just a few hundred pounds, for £1.4 million.

Though not everyone dealing with a deceased’s estate is as fortunate as this vase owner, it may nonetheless be useful to consider the tax consequences where a beneficiary inheriting an item from a deceased’s estate might find themselves entitled to something worth far more than they first realise.

When faced with items that could conceivably be of some value like vases, paintings and jewellery, it is always important for the executors or administrators of an estate to ensure that such items are valued by a professional valuer or auctioneer for probate purposes, and that they receive a written valuation of the items to ensure that all of the necessary declarations are made to HMRC in the course of the administration of the estate.

A very valuable item such as a rare vase could trigger (wholly or in part) an inheritance tax (IHT) bill for the estate, and IHT is charged at a rate of 40% (assuming all or over 90% of the estate is passing to non-charitable beneficiary/ies) above certain thresholds, which vary in availability according to the allowances available to the deceased’s estate.  Expert legal advice is likely to be needed to ensure that the correct allowances and thresholds are applied.

If however an item is valued at a relatively low value for probate purposes but subsequently reaches a high value at auction, then this (unless certain specific mitigating circumstances apply to adjust the IHT position) will be a capital gain calculated on the difference between the probate value and the sale price. In this case, capital gains tax (CGT) may be charged to the estate at a rate of 20% of the gain made, above an annual allowance of £12,300, provided the sale occurs in the tax year in which the death occurred or in the following 2 tax years.  Alternatively, if the item is first appropriated to a beneficiary under the deceased’s Will or estate, that beneficiary may personally be liable to pay only 10% CGT above their annual allowance of £12,300, if they are a basic rate taxpayer.  If they are a higher rate taxpayer, on the other hand, they will pay 20% above their annual available threshold. The rates are different again for gains made on the sale of property (i.e. real estate).

If you are involved in an estate to which IHT or CGT may apply, then please do contact a member of our team who will be able to advise further.