Experts Share Views On Government’s New Increased Probate Fees
The Government’s announcement last month will see many families paying more in probate fees from April 2019. They claimed that fees are vital to funding an effective court and tribunals system and argued that increasing probate fees will enable them to run a fair and efficient court system.
The new legislation will raise the estate value threshold from £5,000 to £50,000 which will exclude around 25,000 estates from probate fees altogether. However, the remaining estates will have an increased fee with the revised structure ensuring that the value of fees will be more than 0.5% of the estate’s value.
Currently, a flat fee of £215, or £155 if an estate uses a solicitor to apply for probate, is made on all estates over £5,000. From April, estates valued between £50,000 and £300,000 will now pay a fee of £250.
Those between £300,001 and half a million pounds will now pay £750. Estates between £500,001 and a million will pay £2,500. Whilst estates in the enviable position at being priced over £2 million will now pay £6,000 to make a grant of probate application.
Following the Government’s announcement to increase probate fees, there has been an overwhelming response from professionals condemning the new legislation suggesting clarity is desperately needed with regards to how probate fees will be claimed – and many branding it as sneaky and deceptive ‘stealth death tax’.
However, a small majority of professionals believe the increased fees could be viewed as encouraging and disagree with the backlash because removing the fees from the estates under £50,000 will benefit more low income families and may be more likely to access legal services as a result.
Our industry experts discuss the new legislation and whether they think it is a fair regulation…
Emily Deane, Technical Counsel at The Society of Trust & Estate Practitioners (STEP), commented: “The Government’s new fee regime is less extortionate than the proposal last year although 85 per cent of estates, where probate applies, will still see a significant increase in fees. The new charges bear no relation to the cost of probate and the additional income will be used to subsidise other courts and tribunals. The Government has failed to explain why it is choosing to place this burden on bereaved families, many of whom will have spent months or years paying expensive care fees for their elderly relatives. It is this demographic that has been singled out to shoulder the cost of the courts service via this additional tax, to be paid on top of IHT and legal expenses. STEP is concerned about the fairness and practicality of the new regime as well as the legality of the Government’s plans to try and introduce this measure without any proper debate via statutory instrument.”
Lakshmi Turner, Chief Executive of Solicitors for the Elderly (SFE) further commented, “This stealth tax, although much lower than before, is still unjustifiable as the probate process will not require additional work or resources.
“It’s extremely unclear how the executors will pay the probate fees and there remains a lot of unanswered questions around how the money will be recovered from the estate, as assets are frozen until the executors receive the grant of probate.
“Whilst it’s good to see that SFE’s campaign against the 2017 probate hike has resulted in a 75% fee drop, not every probate application is simple, so we would highly recommend that people seek specialist legal help at this distressing time.
“We would like to see how the additional funds accrued from the higher fees will be directly supporting people who cannot access the legal services they need.”
Samantha Hookings of Kiteleys Solicitors also comments on the new legislation. she said: “The House of Commons Briefing Paper states that it costs the courts services £1.6 billion to run. The court services recovered £750million in fees with probate fees contributing £49million. If the proposals are implemented a further £250million will be generated which we are told is needed to ensure the court services are run effectively.
“I think it is difficult to argue that the new proposals are fair.
“The cost of delivering the service is arguably the same regardless of the size of your Estate yet the larger your Estate, the higher the fee will be. For the new proposal to not be deemed a ‘stealth death tax’ perhaps a tiered approach could still apply but at a more reasonable level. For example, the fees could move to be more in line with the Land Registry’s fee scale. Houses purchased for under £350,000 can benefit from a registration fee of £135.00 (if submitted online) and houses purchased for over £1,000,000 pay approximately £1,000. The work involved in registering the new title is the same regardless of price.
“Difficulties will undoubtedly arise where there is no immediate access to funds in the Estate, for example if the Estate comprises just a house or investments and a Grant is needed for release of funds. People may have to take out loans to pay the probate fees which will include professional law firms who are appointed executors. However, it is understood that the Lord Chancellor has the power to grant a remission to those who would suffer undue hardship as a result of paying the fee or issue a limited grant to enable bank accounts drawn on.
“It is difficult to justify the increase in probate fees and not feel it is a further tax payable upon death. Whilst the new proposals will mean that no fee is payable for Estates valued under £50,000 this will only benefit a small number of people.
“From a commercial view point the increase in probate fees will undoubtedly lead to a rise in the number of people seeking estate planning and tax advice to try and reduce the size of their estate. This in turn will lead to a greater number of people revisiting their Wills and seeking legal and tax advice.
Tara McInnes, senior associate at Shoosmiths LLP further adds: “The new increased probate fees, due to start in April 2019, are extremely unfair. They are clearly a wealth tax on those individuals with larger estates who are already subject to the Inheritance tax regulations and therefore possibly paying 40%.
“The Justice Minister Nicola Frazer has said that the new increase ‘represents a fair and more progressive way to pay for probate services’
“However, it is difficult to understand what she means by this as currently there is a standard fee for all applications of £155 (where a solicitor is used) and the increase will now mean that the larger estates could face an increase of over £5,000 in probate fees.
Whilst a banding system is to be introduced with estates below £50,000 not liable to pay a fee it is questionable whether this will have much of an impact in any event as many estates below £50,000 are unlikely to need to obtain a grant as banks will release funds on the production of a death certificate.
“Estates valued at under £50,000 are unlikely to consist of any property. Therefore, the increase in fees is more likely to operate as a wealth tax on middle income families who will be forced to pay the fee before they have even accessed their inheritance. With property values in the South East having risen by approximately 5.41% over the last year and with average house prices at £474,558 London being £619,014.00 (source Foxtons), this will mean that the average probate fee for this region will be £750-£2,500.00 and that’s assuming the estate only consists of one property and there are no other assets such as shares or investments.
“This is worrying for several reasons:-
- There is the risk that many estates will try to avoid the excessive fee and will instead use riskier means of avoiding their assets falling in to their estate. Smaller estates just over the £50,000 amount might try to avoid probate entirely or under value assets. There is also the risk of an increase in gifting of assets and the donor might be more vulnerable to the influence of others seeking to benefit for their own means but professing to help reduce the probate fee.
- It’s not clear either how the executors are supposed to finance the fee, which is payable upon obtaining the grant? There is a possibility that the publicity surrounding the fee increase could put people off agreeing to act as executors. This will mean more involvement of professional executors at a further cost to the estate.
- The probate fee legitimately falls to be deducted from the estate with the other administrative expenses, which ultimately will reduce the value of the estate to be distributed to the deceased’s loved ones. This is just an extra burden placed on people when they are at a very vulnerable time in their life.
- The Institute of Legacy Management has estimated that charities (who usually only inherit a share of the residuary part of an estate) could suffer from a loss of £10m a year in legacy income as a result of the increased fee (the fee reducing the amount of the residuary estate). Legacy income is a large part of many charities’ income and it’s not clear how they would go about replacing this loss.
“By her own admissions Nicola Frazer has explained that by increasing the fee she hopes to raise £145m in 2019-2020 to pay for court reforms. So rather than charging estates for the amount of work required to obtain a grant, which would appear fairer, she has introduced another wealth tax, which by South East standards is likely to operate as a tax on all but the poorest families.”