MoJ Confirms Plans To Push Ahead With Unpopular Probate Fees
- New rules linking probate fees to size of estate are effectively a new tax
- Farmers and landowners who are asset-rich, cash-poor will be particularly hard hit
Joint ownership and trusts could be options to avoid charges
- The Ministry of Justice (MoJ) has today (24/02/2017) confirmed it will go ahead with plans to substantially increase probate fees which will see people inheriting an estate worth more than £2m pay charges of £20,000 – despite lawyers warning that this could put older people at risk of unnecessary financial pressures.
From May this year (subject to parliamentary approval) the MoJ is planning to introduce a sliding scale of charges for probate fees, which previously cost £215. Estates worth between £1.6m and £2m will be charged £12,000. Only those below £50,000 will be exempt from charges.
Lawyers from Irwin Mitchell Private Wealth say the proposed new rules are effectively a new tax that will hit property owners who are asset-rich but cash-poor, and rural families with small farms. Out of 831 respondents to the consultation on the proposals, less than 2% were in favour.
It warns people could try to sidestep the punitive charges, which may have terrible unintended consequences and could lead to:
- Older people being pressured to give away assets to avoid high charges
- Older people taking risky measures such as putting money into accounts leading to the right beneficiaries missing out on an inheritance
- Beneficiaries may be forced to take out large loans to be granted probate.
The law firm says the most effective way for families to avoid the new charge is to ensure couples own their homes in joint names or as tenants in common or write assets into a trust.
Expert Opinion“These changes amount to a new form of taxation, as the existing fees (£215) fully meet the cost of the Probate service. It’s a largely administrative function, for which fees up to £20,000 are quite disproportionate, but it’s a vital one as without it executors cannot obtain the grant of probate to enable them to administer a deceased person’s estate.
“Estates would be unfairly affected as they would pay Inheritance tax on the fees as well, which are not deductible from the value of the estate when calculating tax payable. Individual beneficiaries, who are asset-rich but cash-poor, would be badly affected by the need to raise such considerable sums to obtain probate. Many will have no alternative but to go to the expense of a bank loan to pay the fee. Unless the house is being sold, it then leaves a problem as to how the loan is repaid.
“Older people will feel the need, or be pressurised by families, to give away assets in their lifetime, to avoid these high charges. There may be ways of doing this effectively, without prejudicing the security of the persons living in the property, by using a trust, but many will not follow such safe avenues.
“The risk is of many older people living in houses now owned by children who don’t always act in the best interests of their parents. Will the new “owners” enable the parent to move to a suitable smaller property, or indeed stay at home if they still wish to when others feel they should move? It’s risky giving up personal control. Some children will get divorced or end up in financial difficulties and find the home is put unnecessarily at risk in court proceedings.
“Rural families with small farms could be badly affected as the relatively high value of farmland often goes with limited income. Even if a working farm benefited from 100% Agricultural Property Relief for Inheritance Tax, so that no actual tax was payable, this back door tax would still have to be found.” Sarah Phillips - Partner
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