People inheriting estates over £2 million will need to pay charges of £20,000 following a recent proposal from the Ministry of Justice (MoJ).
Currently subject to the approval of Parliament, the MoJ’s plans will involve implementing a sliding scale of charges for probate fees. Previously, these would have cost just £215. A charge of £12,000 will be owed on estates valued between £1.6 million and £2 million. The only estates which won’t incur a charge will be those with a value of under £50,000.
Irwin Mitchell Private Wealth lawyers have commented on the proposed charges, stating that property owners will be hit by the tax the hardest, as well as rural families who own small farms. Less than 2% of the 831 respondents to the consultation were in favour of the proposal.
The firm states that the implementation of the punitive charges could result in consequences which although are unintended, would impact people in a negative way.
These include:
- A pressure upon older people to give away assets in order to sidestep the charges
- Risky measures being taken by older people, resulting in money not going to the correct beneficiaries
- Large loans having to be taken out so that beneficiaries can afford probate
They go on to state that the best way for families to avoid the proposed charge would be to make sure couples own their homes in joint names or as tenants in common. Writing assets into a trust may also be an option.
Commenting on the MoJ’s proposal was partner at Irwin Mitchell Private Wealth, Sarah Phillips. She stated: “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 backdoor tax would still have to be found.”
