8 April 2016 by

Nothing is certain but death and (yet more) taxes

On the 18th February this year the government launched a consultation about reforming the fee payable for an application for a grant of probate.  So far, so dull, right?  Well, perhaps surprisingly the consultation has turned out to be extremely controversial, with many accusing the government of proposing a cynical stealth tax aimed at raising an extra £250million a year in revenue, targeted at bereaved people who have no choice but to use the Probate Service.

When a person dies it is often necessary to obtain a “grant of probate” to administer their estate.  A grant is a legal document that confirms the executors have the right to take control of, sell or transfer the deceased’s assets and eventually distribute the estate to the beneficiaries.

At the moment, the Probate Service’s fee for obtaining a grant of probate is £155 if the application is made through a solicitor or qualified probate practitioner and £215 if the application is made personally.

The government’s proposed changes would mean the fees would be charged according to the value of the estate, as follows:

  • £0 for estates worth under £50,000
  • £300 for estates worth between £50,000 and £300,000
  • £1,000 for estates worth between £300,000 and £500,000
  • £4,000 for estates worth between £500,000 and £1million
  • £8,000 for estates worth between £1million and £1.6million
  • £12,000 for estates worth between £1.6million and £2million
  • £20,000 for estates worth over £2million

You are reading that right – for estates worth more than £2million the fee is going to rise from as low as £155 to £20,000.

The stated goal was to make the system “fair and progressive”, as lower-value estates would pay less and higher-value estates would pay more.  Indeed, an extra 30,000 estates per year would have to pay no fee at all.  In addition, valuable revenue would be raised, helping the court system to pay for itself rather than rely on taxpayer subsidies.

However, there has been quite a backlash against the proposals, with many commentators considering that, among other things:

  • The Probate Service already recovers all of its running costs through the existing fee structure; increasing probate fees would simply mean that bereaved families are subsidising other parts of the Courts Service.
  • Increasing fees by such a significant amount will incentivise avoidance behaviour; people can (and likely will) structure their affairs so that there is no need to obtain a grant of probate.  This might include ensuring that assets are owned jointly or placed in trust.  The need to obtain a grant of probate operates firstly as a means to ensure estates are properly administered and distributed, and secondly ensures that inheritance tax is paid (IHT must be paid before a grant can be issued by the Probate Service).
  • The proposed fees would be the highest charged throughout the entire courts system, including the Supreme Court.
  • Executors may experience difficulty in raising money to pay for the fee on top of the funeral costs and inheritance tax bill, as the majority of the deceased’s assets cannot be accessed without the grant of probate.
  • Probate fees can’t be deducted from the estate when calculating inheritance tax, so the most valuable estates would in effect have to pay £8,000 tax on the fee itself.
  • The proposed changes would disproportionately affect London and the South-East, where property values are the highest.

Bolt Burdon’s position is that whilst the intended aims for the proposed changes are laudable, the proposition itself is deeply flawed and unfair, and amounts to an additional tax on bereaved families, and we have submitted a response to the consultation to that effect.

At present the new fees are just a proposal.  If the proposal is enacted and you think you may be affected by the changes, then please contact Iain Aitken in our Wealth & Estate Planning team on 0207 288 4713 or by email at iainaitken@boltburdon.co.uk.

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