New probate fees – stealth death tax for the middle classes

14 November 2018

Despite overwhelming opposition, the government has set a date for a new stealth death ‘tax’ aimed at bereaved families.
 
The government announced that from April 2019, fees payable to the Probate Registry to obtain a Grant of Probate or Letters of Administration, which are needed to take control of a deceased’s estate, will be dramatically increased. The new system is based on a sliding scale, with estates worth over £2 million, which currently incur a fee of £215 (personal application) or £155 (solicitor’s application) to secure the key documentation, now paying £6,000 in fees.
 
The future fees will be:
 

Value of Estate before Inheritance Tax

New Fee

Estates worth up to £50,000 are exempt from requiring a grant of probate (increase from £5,000)

£0

Estates worth from £50,000 to £300,000

£250

Estates worth from £300,000 to £500,000

£750

Estates worth from £500,000 to £1 million

£2,500

Estates worth from £1 million to £1.6 million

£4,000

Estates worth from £1.6 million to £2 million

£5,000

Above £2m

£6,000

This follows on from an initial consultation which touted a £20,000 fee for estates over £2 million, an increase of 129 times the current amount.
 
While the new fees are a slightly watered-down version of the initial proposal (some would say an excellent piece of expectation-management by the Government), this has created a dangerous precedent of disproportionate court fees for the limited work actually required to issue a Grant. This is further confounding given the government’s own admission that the current fees cover the cost of administration in the courts, and that the level of work for the court to issue a Grant for a valuable estate is usually no more than any other estate.
 
The concession, that estates with a value of up to £50,000 incur no fees, is of no comfort. Most of these estates do not need Grants because the assets will be below thresholds requiring one (for example, Barclays’ threshold to release funds is as much as £30,000). 
 
With this in mind, there is little doubt this is a stealth tax aimed at the wealthier estates. The government has estimated this will raise £145 million in 2019-20, rising to £185 million in 2023, to pay for court reforms and to fund areas of the court system where they charge no fees.
 
While the government believes “these fees will never be unaffordable” and that the “estate and executors have several options to fund it”, in practice this may not be the case. There may be some valuable estates which will barely notice this fee increase, but this will not be the case for estates between £500,000 and £2 million where the fees will be in the £1,000s. This level of estate is not unusual in the South of England where property prices have shot up over the years and are predominantly owned by an ageing population.
 
On top of the disproportionate increase, this change will leave many estates struggling to pay the fee up front when assets are tied up in frozen bank accounts or real property. Banks will need to allow access to accounts to pay this. In the short term, therefore, executors will have little choice but to fund these extra fees personally, whether by loan (depending on the executor’s credit rating), or from their personal non-estate assets.
 
How estates will pay for this will ultimately remain unclear until the government publishes its promised guidance.
 
However, our greatest fear is that this 'tax' will push people away from using Wills as the means for leaving assets on death and make estate planning even more complicated. 
 
In order to reduce their estates before death, individuals may turn to gifting during their lifetime, which could leave them financially vulnerable for the rest of their life, and/or see assets passing through an unstructured legacy. For instance, a deathbed gift prompted by a wish to slip into a lower band for probate fees may see money passing into the wrong hands with limited recourse, and be contrary to the wishes in the Will. 
 
Another attempt to mitigate the probate fee would be to use the survivorship rules for joint property and joint bank accounts. The survivorship rules see property owned jointly (joint tenants for property not tenants in common) automatically pass to the survivor on death, rather than via the Will, meaning the value is not included in the value of the estate at the Grant application stage and therefore is presumably not included in the calculation for the probate fee (the details on which assets are captured by the charge will presumably become clearer in due course). 
 
Using survivorship rules can be very effective in some cases, such as on first death in a simple estate of a husband and wife. However this automatic inheritance can be lead to inequality between children, misunderstanding as to who gets what, and ultimately not fulfil the deceased’s true wishes. For instance, if a child owned a bank account with a parent, then that child will be become the sole legal owner on the parent’s death. Technically the other children could not inherit anything from this account even if they had an entitlement under a Will.
 
In a similar vein if joint tenant ownership over property is chosen for a married couple, who have children from a previous marriage, the first to die’s half share of the property will pass automatically to the surviving spouse and not to his/her children from the previous marriage. This is rarely the intention of the parent who has died and could lead to the children from the previous marriage being completely disinherited.
 
This is a stealth tax plain and simple; the richer you are at death, the more you pay, and this will often be on an estate that is already subject to 40% inheritance tax. Sadly though, there is limited action we can take to avoid this, aside from gifting and joint ownership. However these need to carefully managed, and proper advice on planning will need to be sought. 

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