Tough new probate fees give families a headache
The fee increase is subject to an approval motion in the House of Commons, which has been delayed due to more pressing matters such as Brexit. This means the new probate regime will no longer be introduced this month, as has been previously reported.
The new fees order will still come into force eventually (21 days after the order is made), unless MP’s object to the approval motion. In this case, the issue will have to be debated in full and put to a vote.
When it does, the consequences could be significant. The current fees are £215 for personal applications and £155 for solicitor applications. The Lord Chancellor is seeking to generate revenue to improve the Courts and Tribunal Services in order to provide a “world class courts service”. The revenue generated will amount to about £155 million per year, paid for by higher value estates.
These new fees mean estates are effectively being double-taxed, once for inheritance tax of 40% above the nil-rate band, and then again through tiered probate fees. The smallest estates will avoid fees altogether.
The fees will be linked to the gross value of an estate:
- Estates worth less than £50,000, no rise
- Estates worth £50,000 up to £300,000 will pay £250, a rise of £95
- Estates worth £300,000 up to £500,000 will pay £750, a rise of £595
- Estates worth £500,000 up to £1 million will pay £2,500, a rise of £2,130
- Estates worth £1 million up to £1.6 million will pay £4,000, a rise of £3,845
- Estates worth £1.6 million up to £2 million will pay £5,000, a rise of £4,845
- Estates worth more than £2 million will pay £6,000, a rise of £5,845.
Many families will need to look at how to raise enough money to pay the fees. We are told that banking institutions will allow access to the deceased’s accounts as they currently do for funeral expenses and inheritance tax. The concern is that there may not be sufficient capital available to meet all of these expenses, raising the issue that the executors could have to fund the probate fee personally or take out a loan, the latter causing additional fees and interest.
Potentially we could see families considering life policies written in trust to cover probate fees, this is something common practice to either cover or assist with the burden of payment of inheritance tax. This arrangement will involve payment of premiums which will be an added expense for families. Or we may see arrangements being put in place for cash to be put by in bank accounts held in the joint names of family members for ease of access.
An option that some married couples may explore is the simplification of their estates such as unravelling property ownership to reduce the value of their estates. This may seriously impact on tax planned wills and the protection under those wills for spouses with children from different relationships.
Sadly there is limited action that can be taken, aside from gifting and joint ownership. However, these need to be carefully managed, and proper advice on planning needs to be sought.
Helen Stewart is head of probate at Thomson Snell & Passmore