What Does HMRC Mean by “Open Market Value”

Ask a solicitor for a probate valuation and you will be given one. Ask the Inheritance Tax Act 1984 for a probate valuation and you will find no such thing exists. There is no separate probate basis in UK tax law. There is only market value, set out in one sentence of statute that has stood unamended for forty years.

Section 160 of the Act puts it this way: “the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.”

Every figure entered on an IHT400 and its schedules descends from that sentence. The house, the car, the shares, the wedding ring in the bedside drawer. The definition is short and its arithmetic is simple. The difficulty lies in what it quietly assumes.

The Sale That Never Happens

The statute imagines a transaction that did not take place, and HMRC has had to describe it. Its Inheritance Tax Manual at IHTM09704 sets out the terms. The sale is “not sudden or forced”. There is “a willing seller”, meaning “someone who is neither in a rush, nor reluctant, to sell but someone who is prepared to sell if offered a reasonable price”. Facing them is “a willing buyer”, described as “a prudent person who has the will and money to buy but again is not anxious, nor unduly reluctant, to purchase.”

Neither party is under pressure. The seller is not emptying a house against a completion deadline and the buyer is not being squeezed. The figure that emerges is the sensible price two unhurried people would settle on, which is why a house clearance quote and a dealer’s walk-in offer are both poor guides to it. Both are priced for speed.

The courts got there first. In IRC v Gray [1994] STC 360, which HMRC’s own manuals treat as the authoritative restatement of the statutory hypothesis, Hoffmann LJ described the hypothetical vendor as “an anonymous but reasonable vendor, who goes about the sale as a prudent man of business, negotiating seriously without giving the impression of being either over-anxious or unduly reluctant.” That is the same person HMRC’s caseworkers are asked to picture, in a judge’s language.

One refinement matters for unusual items. Where a particular buyer would pay far more than anyone else, perhaps a museum completing a set or a collector chasing the last piece of a run, HMRC says that special buyer should be taken into account. It also says the market value “will be less than what the special buyer is prepared to pay.” The presence of one exceptional bidder lifts the figure; it does not become the figure.

What Open Market Value Is Not

Three familiar documents get mistaken for a probate valuation, and each of them pushes the number in a direction that costs somebody money.

The first is an insurance valuation. Insurance is written to replace, and replacement cost is the price of buying an equivalent item new from a retailer, complete with margin and VAT. Open market value is what the used item would fetch on resale. HMRC warns about the gap in terms at IHTM21041, noting that a valuation prepared on another basis “may not satisfy the terms of S160” and that one made “for insurance purposes” using replacement values “may include too high a value.” The distance is not marginal. A sofa insured at £1,200 might realise a small fraction of that in a general sale, and a ring insured for several thousand pounds can be worth a good deal less once it is bid on rather than reordered.

The second is a document that says the right thing on its cover and the wrong thing inside. HMRC’s guidance tells caseworkers that where a valuation “is described as being made ‘for probate purposes’ or for ‘IHT purposes'” they may want to confirm that open market value has actually been used. A label is not a basis. This is the trap that catches the most careful executors, because the report looks entirely proper and nobody thinks to read past the heading.

The third is the family’s own frame of reference: what the item cost, and what it meant. Neither has any bearing. Purchase price is historic and often decades stale. Sentimental value has no place in the calculation at all, however strongly it is felt, and the fact that it is felt is precisely why an outside eye is useful when an estate is being assembled.

Why HMRC Prefers a Real Sale

Where something has actually been sold, the hypothesis becomes unnecessary. HMRC’s position is direct: “Generally, sales after the death, particularly those at auction, provide the best evidence of the open market value at the date of sale.”

That preference is easy to understand from inside the trade. An auction is the closest thing the real world offers to the statutory hypothesis. The goods are catalogued and offered to the whole market, the price is set by open competition among buyers who came of their own accord, and nobody is compelled to do anything. What the room decides on the day is, by definition, what the item fetches.

Which brings us to the number that goes on the form, and the arithmetic that surrounds it. HMRC is unambiguous: “The auction sale price is the gross proceeds of sale (or hammer price) before deduction of commission and insurance and without addition of any buyer’s premium.”

Take a lot that hammers at £1,000. The buyer does not pay £1,000. On Bonhams’ published UK rate card, 28 per cent applies to the first £40,000 of hammer, with VAT at 20 per cent added to the premium, so the buyer’s invoice comes to £1,336. Nor does the estate receive £1,000. At a regional saleroom charging in the region of 22.5 per cent inclusive of VAT, roughly £775 reaches the estate account. Three different figures, one transaction, and the one HMRC wants is the middle one that nobody actually pays or receives. These fee percentages are market context rather than tax rules, and rate cards change often, but the principle holds whatever the rates happen to be.

The corollary trips people up in the other direction. Selling costs and valuation fees are not deductions. HMRC’s instruction to its officers is blunt: “any costs incurred after the date of death are administration expenses and therefore not deductible.” The reasoning is old and settled, and it means the estate carries those costs without the tax figure moving.

Where death and sale fall on different dates, there is room for discussion. The taxpayer may simply substitute the sale prices, or may argue for an adjustment reflecting market movement between the two dates, with HMRC free to consult its Shares and Assets Valuation team where the sums justify it. In volatile categories, and gold and watches have both been volatile lately, that gap can be worth arguing about.

When Nothing Has Been Sold

Most estates do not sell everything, and many sell nothing at all. In that case the value has to be evidenced rather than demonstrated, and HMRC accepts a professional valuation that says so on its face. The manual tells caseworkers they will usually be able to accept a professional valuation of household goods which states that it has been prepared on the basis of open market value, or in the terms of section 160. The wording is not a formality. A letter on headed paper from a reputable jeweller, giving figures without stating the basis, invites exactly the query it was obtained to prevent.

Jewellery deserves particular attention. Any single item worth more than £1,500 must be listed individually on the IHT407 schedule, and with precious metal prices where they are, that threshold is now crossed by pieces that look entirely ordinary in a drawer. Caseworkers also cross-reference what they can see, and an item separately named on an insurance schedule is expected to appear on the return, itemised at its lower open market figure rather than quietly folded into a round sum for contents.

Grouping matters too. In Duke of Buccleuch v IRC [1967] 1 AC 506, Lord Wilberforce held that “the estate is to be taken as it is found”, but that “some practical grouping or classification, such as can reasonably be carried out without undue expenditure of time or effort, by a prudent man concerned to obtain the most favourable price, may be supposed.” Sets, suites, part services and runs of a collection are worth more assembled than scattered, and valuing them item by item can understate the estate as surely as an insurance schedule overstates it.

For land and buildings the expectation is more specific again. HMRC strongly recommends a professional valuer, and RICS members should normally carry out inheritance tax valuations on the Red Book basis, with the valuer expressly instructed to report open market value in accordance with section 160.

Why the Standard Matters More Than It Used To

The bands have not moved. The nil-rate band has been £325,000 since 2009 and the residence nil-rate band £175,000 since 2020, and the Autumn Budget 2025 extended the freeze on both, and on the £2m taper threshold, through to the end of the 2030 to 2031 tax year. Asset values have moved a great deal in that time. Receipts have followed, reaching £8.2bn in 2024/25.

More is coming. From 6 April 2027, most unused defined contribution pension funds and lump sum death benefits are due to fall within the estate for inheritance tax, an announced change rather than current law, and one that will pull estates over the threshold which have never been near it. The valuation standard itself is unchanged. What has changed is how many families the standard now reaches, and how much rests on getting the contents figure right rather than guessed.

Scotland and Northern Ireland

The terminology differs across the UK, the tax does not. Scotland grants Confirmation rather than probate, on application to the Sheriff Court, and the estate’s representative is an executor-nominate or executor-dative. Inheritance tax is a UK-wide tax throughout. Section 160, the IHT400 and IHT407, and the nil-rate bands apply identically in Aberdeen, Belfast and Bristol. Only the route to the grant changes.

The recurring problem is not dishonesty. It is that executors reach for the only valuation document they have, which is usually the insurance schedule, and the number on it was never meant for this purpose.

If you would rather the figure was right the first time, our house contents probate valuation service prepares reports expressly on the section 160 open market basis.

Figures and auction rate cards stated as at July 2026.