The government has regrettably decided to press ahead with the plan to increase probate fees to a level way above the cost of the service.
First proposed under the last government in 2017, the much-criticised ‘death tax’ plan would have imposed fees of £20,000 on applications for probate of estates worth £2m; the current fee is £215, or £155 for those applying through a solicitor.
The government admitted at the time that the present probate regime was in fact self-funding and the additional revenue would be used elsewhere in the courts system.
It has now returned with a revised scale of fees which will expressly contribute towards the cost of the Courts and Tribunals Service. This is, in effect, a new tax raising new money for the Exchequer. The plan is an improvement on the original, but it has serious ramifications and may not work in the intended way to raise the expected amounts.
The fees kick in at £250 on smaller estates ranging to £6,000 on estates worth over and above £2m. We’ve provided a breakdown of fees below:
Up to £50,000
Up to £300,000
Up to £500,000
Up to £1m
Up to £1.6m
Up to and over £2m
It is laudable that the new fee structure will lift the lower value estates out of paying fees at all, by raising the threshold value of estates from £5,000 to £50,000. It is also positive that they have lowered the fees, so that the maximum is now £6,000 rather than the excessive £20,000 it has been previously. However these are still hefty fees, and will be particularly tough on two forms of estate in particular.
Where estates are exempt from inheritance tax (IHT), because there is a surviving spouse or the estate is going mainly to charity which is exempt from IHT, there will still be a big fee to pay to be able to access the estate assets.
Where estates are asset rich but cash poor, such as when a widow is living in a valuable old house which happens to be owned by her late husband and she has no plans to sell or move, a grant of probate will still be needed before she can get the house in her name; this might mean a bill for several thousand pounds.
Another example would be two sisters living in a house they owned in joint names, as tenants in common, where one passes and the other needs to get probate to deal with the other half of the property according to the Will. It can be a struggle anyway, as there is no IHT exemption for a sibling, and if there is no cash from which to pay the fees, they may need to borrow the money.
That prompts another big concern. Already some companies promote schemes which purport to offer ‘trusts to avoid probate’, and may well market them aggressively and over-state the benefits. This can persuade vulnerable older people to part with funds in their lifetime to save probate fees, even if the precaution may not be needed.
Such trusts, like the ones promising to “save nursing home fees”, have tax and trust law complications, so they are not risk or compliance free. The irony of such a strategy is that by putting assets into a lifetime trust it may mean that, by accident or design, people under-pay IHT on the death of one or more joint owner.
IHT is paid when people apply for probate, as a necessary step to getting that title to deal with the assets, and by-passing the process may mean that the necessary IHT account is overlooked. So it would be ironic if this tax-raising venture actually resulted in less net receipts for the Exchequer.
These changes underline the need to review Wills and property ownership –generally a good idea - to see how the probate fees might work in your circumstances.
Spouses who still have property in the name of one spouse should consider or take advice on putting it into joint names, so at least only half the value is included.
As highlighted above, siblings or friends who share occupation and/or ownership of property need to think carefully about their options as there may be significant tax issues.
If a property is in only one name, might it be appropriate to make a gift to joint names with a declaration of trust on how ownership is shared?
This brings into play the choice between joint tenants, which is better for saving probate fees, or tenants in common, which would be necessary for trusts in the Will and/or tax planning. For instance, if siblings are tenants in common, the first to die could leave their share to a discretionary trust rather than a life interest trust.
Specialist advice, and in this case perhaps an independent trustee, would be an investment worth making to save tax in the long run.
Published: 21 November 2018
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