Probate fee increases: a death tax by any other name?

25 February 2016

Probate fees do not, on the whole, cause much consternation. After someone dies, an application to the Probate Registry is often needed to obtain a grant – proof acceptable to English financial institutions that they can safely pay over the deceased’s assets to the personal representatives (PRs) named on the grant. This exercise, one of the few occasions when PRs can swear at a lawyer without anyone getting upset (swearing the oath), is usually fairly straightforward and the application to the Probate Registry for the grant currently costs £155 if done through a solicitor. However, in its recently published consultation, the Government states that it would like to raise probate fees to £20,000 for some estates. Yes, £20,000 just to get the grant! No wonder some quarters of the press have dubbed this another death tax.

The Government proposes to return to a pre-1999 system of probate fees reflecting the value of the estate. The biggest losers will be estates worth £1 million or more:

Value of estate (before inheritance tax) Proportion of all estates in England and Wales Proposed Fee
Up to £50,000 or exempt from requiring a grant of probate 57% £0
Exceeds £50,000 but does not exceed £300,000 27% £300
Exceeds £300,000 but does not exceed £500,000 10% £1,000
Exceeds £500,000 but does not exceed £1m 5% £4,000
Exceeds £1m but does not exceed £1.6m 1% £8,000
Exceeds £1.6m but does not exceed £2m 0.2% £12,000
Above £2m 0.4% £20,000

(Source: UK Ministry of Justice’s Consultation on proposals to reform fees for grants of probate: Feb 2016)

The reason given for the huge increases is to reduce public funding of the Courts and Tribunals system (by placing the burden on a small sector of the public instead, it would seem) and to find funding to take the probate application process online. The proposed changes will generate an additional £250 million, according to the consultation.

Should these changes come to pass, it is likely that HNW families will routinely require advice on how to plan for and fund probate fees. They will not want to lose £20,000 twice on the passing of both parents. Couples should be able to avoid higher probate fees after the first death by owning assets jointly as beneficial joint tenants. A death certificate may be all that is needed to get the assets transferred over into the surviving spouse’s sole name without the need for a grant. However, will-based Inheritance Tax planning often requires couples to own assets jointly in the alternative manner, as tenants in common. The solution may be to own as beneficial joint tenants and then retrospectively change the ownership into tenants in common after the first death through the use of a deed of variation within the two year time limit permitted. Ownership of family assets via a corporate, whose articles could permit transfers of shares without requirement for sight of a grant, may also offer another alternative.

The consultation contains an intriguing attempt to justify the increased probate fees for HNWs by pointing out that those families most significantly affected by probate fee increases will be better off overall after the introduction of the Inheritance Tax Residence Nil Rate Band in 2017 (which hints that the introduction of the proposed changes could coincide with this date). This, it is stated, means that these families will be paying significantly less Inheritance Tax and, as a matter of fairness, they should not mind using some of the tax saved to put towards increased probate fees!

An estate of a surviving spouse worth just over £2 million could see its inheritance tax bill fall from £540,000 to £400,000, while their probate fee would rise to £20,000. (para 39, MOJ’s Consultation)

What the Government giveth with one hand, it taketh away with the other!

Helena Luckhurst Author
Helena Luckhurst
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