Probate Fees; Take a Hike … a new inheritance tax by stealth?

1 March 2017

Unfortunately, and regardless of overwhelming opposition, probate and estate administration lawyers are dismayed to see that the Government is pushing through a massive hike in probate fees.

Currently there are flat, fixed rates for applications involving a solicitor (£155) and applications done in person (£215). These fees apply irrespective of value in the estate. Estates worth below £5,000 do not incur a fee.

From May (the exact date is still to be confirmed), here is the new probate fees structure:

New fee structure:
Value of estate (before inheritance tax) 
New fee
Up to £50,000 are exempt from requiring a grant of probate (an increase from £5,000) £0
Exceeds £50,000 but does not exceed £300,000  £300
Exceeds £300,000 but does not exceed £500,000  £1,000
Exceeds £500,000 but does not exceed £1m  £4,000
Exceeds £1m but does not exceed £1.6m  £8,000
Exceeds £1.6m but does not exceed £2m  £12,000
Above £2m  £20,000

In summary, an estate worth in excess of £2 million suffers a court fee a staggering 129 times greater than if the probate application had been received in April. Such estates are of course very common in the South East, simply due to real estate property values. An estate worth in excess of £1.6 million (frequently encountered in many parts of England and Wales) now pays a fee astoundingly 77 times greater.

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, as is Nationwide’s).  

The Government’s consultation response document helpfully highlights the criticism these measures have received, but seemingly offers very few direct replies.  For example, the main disagreements with the proposal were that: 

  • the size of the fee should be set according to the cost of providing the service;
  • these higher fees represented too great an increase from current fees;
  • the fees charged for higher value estates were being set at levels to “subsidise” those estates under the £50,000 threshold paying no fee;
  • there may be real issues arranging payment of these fees due to inconsistencies across the financial sector in their approach to releasing funds to executors;
  • the administration involved and therefore cost to the Probate Service is the same regardless of the value of the estate; and
  • as the proposed fees would be set above cost recovery levels, they in effect amounted to a form of taxation.

Rather than refuting these criticisms, the justification seems to be that money talks – i.e. “We expect these reforms to deliver around £300 million in additional income per year” and it is fair to tax in this way because “we believe it is reasonable to ask those who use the services to pay more where they can afford to do so”. The Government’s response implies that people who object to this funding mechanism jeopardise “a fair and functional justice system”.

Asset heavy, cash poor estates will be the hardest hit. How will executors raise funds upfront to settle this extra pre-Grant fee? Currently, many executors struggle to raise funds to pay inheritance tax. Have the Government arranged a scheme with banks and building societies to release funds upfront, as they do for inheritance tax? The Government answers: “The British Bankers’ Association and the Building Societies’ Association’s bereavement principles encourage members to work to support the individual needs of the bereaved, to treat them with compassion and respect, and to allow necessary payments to be made where possible, within the law. This does not amount to a guarantee that funds will be released from a deceased’s bank account either without, or pending, a grant of probate – each case will always have to be considered on its merits.” – that’s a “no” then.

How about accessing Government stock or NS&I assets which are, of course, Government administered; surely these will have a failsafe early access mechanism?  Well, the Government have said the Ministry of Justice is “investigating this option” – err, so no mechanism in place here either.

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. Needless to say, interest arising on such a loan and the professional costs of arranging this will also increase the estate costs. In the case of professional executors, the Government suggests that firms may be willing to pay this fee upfront on behalf of the estate.  We are very sceptical about this being true for the majority of asset heavy, cash poor scenarios; it is asking the professional firm to take on a large liability and cash flow hit, only repayable once there are sufficient funds available (which will not be upon issuing of the Grant but until a point possibly much later, when the deceased’s house has eventually been sold).

Needless to say, these new fees are a further point to address in the Wills and Succession Planning  and / or Family Tax and Structuring Advice meetings we have with our clients.

In summary, our reaction to this announcement in the words of that US bloke dominating our news agenda: Sad!

Further information

For more information on the issues raised in this blog, please contact Joseph Austin or any member of our Private Client team.

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We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

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