Controversial New Probate Fees Imminent
With the continuing issue of Brexit still hovering over the Government, the less urgent approval motion to controversially increase probate fees has been delayed. It had been suggested that the new probate regime would be introduced this month. Then 21 days after the order has been made the new fees will come into force unless MP’s strenuously object to the approval motion. In this case, the issue would have to be debated in full and put to a vote.
Surprisingly, HMRC has introduced a temporary process for probate applications as it is preparing to switch to this new fee structure. It has announced that it will accept applications for probate before an Inheritance Tax (IHT) account has been processed. Currently to get Probate the Executor must first submit an inheritance tax account, which must then be processed by HMRC before any further application can be accepted.
The rationale behind the fee hike is the Lord Chancellor seeking to generate revenue. He is striving to improve the Court and Tribunal Services in order to provide a “world class courts service”. Estimates anticipate around £155m will be raised annually by the new fees charged on higher value estates. In February MPs of the delegated legislation committee which had probed the nature of the fee agreed with the Ministry of Justice that the mandatory charge on the Estates of the deceased was a fee for the provision of services, and not a tax.
Dubbed a stealth tax and an abuse of power by critics, this bill ensures probate costs are subject to sliding scale of fees. Currently fees are £215 for personal applications and £155 for solicitor applications.
These new fees mean Estates are effectively being double taxed, once for Inheritance Tax (IHT) of 40% above the nil rate band, and then again through tiered probate fees. This is of course on the understanding that the contents of the Estate were taxed at source to begin with.
The fees are linked to the gross value of an Estate and the smallest estates will avoid fees entirely. In fact according to the Ministry of Justice this new lower threshold will exempt around 25,000 Estates annually from any fees. The fee breakdown is as follows:
Estates less than £50,000 are unchanged
Estates worth £50,000-£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 £1,600,000 will pay £4,000 a rise of £3,845
Estates worth £1,600,000 up to £2 million will pay £5,000 a rise of £4,845
Estates worth over £2 million will pay £6,000 which is a rise of £5,845
These increased fees are potentially going to leave bereaved families struggling. Many banking institutions will allow access to the deceased accounts for funeral expenses and inheritance tax bills. The real concern is that there may not be sufficient capital available to meet all of these expenses. If that is the case, the executors could have to fund the probate fee personally or take out a loan, the latter of course causing additional fees and interest.
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 IHT. This will involve the payment of premiums which will be an added expense for families. Another solution is for appropriate amounts of cash to be put into joint family accounts for ease of access.
An option available for married couples 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. Aside from gifting and joint ownership, there is limited action that can be taken.
Given the changing landscape of probate and IHT it is crucial that you speak to an experienced professional and impartial financial expert. Contact us now for the complete peace of mind that efficient financial planning brings for you and your loved ones.