New Probate Fees Are Classified As Tax According To OBR Report

In the Office for Budget Responsibility’s latest Economic and Fiscal Outlook (OBR) Report published earlier this week, The Treasury is expecting the Office of National Statistics (ONS) to categorise probate fees as a ‘tax’.

However, Lucy Frazer, the minister responsible for legal fees told parliament last month “What we are proposing is an enhanced fee, not a tax.” which appears to contradict what it says in the report.

The OBR report supports the view of ILM and The Law Society that the replacement of the flat-rate fee constitutes a tax, as the report, which was published along with the Chancellor’s Spring Statement this week, indicated that the new fee system was a tax.

The OBR report (Annex A) says the following about probate fees:

“The Government has confirmed its plans to change the fees payable for an application for a grant of probate. The new rates range between £250 and £6,000 depending on the value of the estate and come into effect in April.

The Treasury expects the ONS to classify the new structure – with its 2,700 per cent increase in cost for estates valued over £2 million – as a tax in the National Accounts.

The new probate fee structure is expected to generate £155 million a year in additional tax receipts. There will be a small knock-on effect to inheritance tax receipts due to the incentive for individuals with estates worth close to thresholds in the new probate fee structure to reduce the value of their estates (through genuine or contrived means) to pay a lower fee.

This effect is expected to be relatively small (around £5 million a year), since the inheritance tax liability itself already provides a significant incentive to reduce the value of estates. The Government has decided to offset the expected yield from probate fees by removing the same amount in ‘negative spending’ from RDEL. (footnote 6).

(footnote 6 – Probate fees were due to raise around £50 million a year in the absence of this measure. The Government has decided to offset this too, and this amount is contained within the ‘Other RDEL changes’ line in Table A.2). 

The House of Lords, The Law Society and various charity organisations such as the Institute of Legacy Management (ILM) have all expressed concern and are fully against the changes to the Non-Contentious Probate Fees Bill.

The ILM has now urged the Government to let MPs vote on the proposed new changes to probate fees.

Ian Bond, Chair of The Law Society’s ‘Wills and Equity Committee’ says: “The Law Society are against the change. Our position has always been that the changes to the Probate Fees is a tax by any other name. It is of significance that it will be called a tax in the National Accounts.”

Experts say Ministers have been choosing their words carefully by describing the change as an ‘enhanced fee’ as if it was called ‘tax’ it would have to be introduced via primary legislation and would require a commons debate and a vote to become law. Whereas, classing it as a ‘fee’ would mean the Government would be able to implement changes by using a statutory instrument, which is a secondary legislation that does not require a vote.

The Non-Contentious Probate (Fees) Order which was passed last month will eradicate the existing current flat fee of £215 (or £155 if an estate uses a solicitor to apply for probate) to be replaced with fee bands – with estates of more than £50,000 paying between £250 and £6,000.

The proposed Probate Fee Order could become law in just a few weeks once the statutory order is laid before parliament.

The ILM has been campaigning against the probate fee changes for the past 2 years and have calculated that the proposed changes will cost the charity sector £10m annually in legacy income – plus if it is implemented, Cancer Research UK’s income will be reduced by £600,000 per annum.

In an interview earlier this year, Solicitor and Chair of the Institute of Legacy Management, and Head of Legacy Professional Partnerships at Cancer Research UK, Maria King, talks about the damaging effects that the planned increases in probate fees will have on the charitable sector.

She said: “The Institute of Legacy Management is concerned that to save money people may choose not to instruct professionals to carry out Probate, might renounce their executorship, or simply not apply for Probate in order to avoid the fee.

“This causes us concern, as residuary charities may need to divert funds away from their charitable objectives to pay for upfront Probate Fees when they step in as administrator. Additionally, anything that could deter the probate process is a risk to vital legacy income.”

Matthew Lagden, chief executive of the ILM, said it had always regarded the changes as a tax too “because the new charges will be significantly higher than the costs of delivering the service”.

Lagden said he hoped the OBR report’s use of the word “tax” would “cause the government to take stock and either reconsider or bring forward legislation so it can be debated properly”.

He further added: “We understand that the House of Lords shared this view, which is why they felt unable to vote it down because by convention they do not vote down taxation measures.”

The ILM and three other sector organisations have written to the minister, Lucy Frazer this week asking for a reduced or discounted rate on probate fees for estates that include legacy gifts.

Another signatory, The Institute of Fundraising (IOF) also feel the changes to probate fees is classed as a tax.

A spokeswoman for IOF said: “We, therefore, continue to urge the Ministry of Justice to review this for a fairer cost that is proportionate to the work involved and includes a charitable exemption.”

However, even though the ONS has classified the change as tax, the Ministry of Justice stands firm and still considers it as a fee.

An MoJ spokesman said: “This is not a tax and any decision by the ONS to define it as such would be purely for accounting purposes.

“The income raised from probate fees will go towards funding a more efficient and effective courts and tribunals system.”

The Law Society, ILM, and other charity organisations firmly believe that the changes to the probate fees is a tax and not by any other name and will continue to push forward to campaign against the changes – and hope the Government will reconsider and decide not to implement the changes despite overwhelming widespread opposition.