Probate Fee Increase: A tax on London, the rich and death?
According to the Ministry of Justice’s announcement earlier in the year, the proposed Probate Fee increase is set to come into play next month, May 2017. Currently, probate is charged at a flat fee of £215 for individuals (£155 for Solicitors), the proposed increases could see some estates facing probate fees of around £20,000. However, a recent report suggests that planned probate fee increase may not be legally enforceable.
Why the Probate Fee Increase?
Current revenue generated by current probate fees does fully cover the cost of the service however, the Ministry of Justice are looking to reduce the £1.1 BILLION burden the courts and tribunal system places on the UK taxpayer. The proposed changes are predicted to raise an extra £250 million for the Exchequer which does make a dent in the billion plus running costs.
While Justice minister Shailesh Vara does accept that the probate fee increase will be unpopular he also states that they are necessary “making a significant contribution to reducing the deficit and enable investment, which will transform the courts and tribunals service”.
How does the proposed banded Probate Fee structure work?
Currently, there is a flat fee payable for all estates worth over £5,000. These are; £215 for individual applications or £155 if the probate application is made by a Solicitor.
Under the new proposals the threshold for fees payable rises from an estate value of £5,000 to £50,000. Meaning that if your estate is valued at under £50,000 there is no fee to pay. However, if your estate is valued £50,000 and above – and let’s face if you own property there is a very real possibility that it will be… then fees will be charged on a sliding scale as follows:
- £300 for estates worth more than £50,000 and up to £300,000
- £1,000 for estates worth more than £300,000 and up to £500,000
- £4,000 for estates worth more than £500,000 and up to £1 million
- £8,000 for estates worth more than £1m and up to £1.6 million
- £12,000 for estates worth more than £1.6m and up to £2 million
- £20,000 for estates worth more than £2 million
Apparently, in this brave new world of probate fees over half of estates will pay nothing. Over 90% of the remaining will pay just £1,000 and ONLY one percent of estates – or 2,700 (which does seem quite a lot) families would be hit with a £20,000 fee. So, that’s good then.
When do you pay Probate Fees?
Well, here’s the thing. The fee is payable at the time you apply for probate which is fine if you or your relatives only need to pay £215, or even a £1,000. But finding thousands isn’t quite so easy. Because most of our wealth is tied up in property you could well die leaving an estate worth £1 million, especially if you live in London this doesn’t mean that your family has £4,000 just lying about.
Oh, and don’t forget you cannot access any of the estate to recoup the fees until after probate has been granted.
What are the implications of the probate fee increase?
Well on top of forcing the deceased families to get their hands on enough to funds to pay the increased fees. It just adds another layer of complexity to estate planning with people looking for more creative ways to reduce the value of their estates. For example using trusts to bring down the estate value in order to obtain a lesser fee. For those that are concerned that their families won’t be able to meet the increased fee, they can leave sufficient funds in a life insurance policy. Providing this policy is held in trust it can be accessed immediately on death before probate is granted.
There are many saying that the probate fee increase proposals amount to nothing more than a tax on London – where property prices are rising at an exponential rate, the rich and in fact, death itself
So, is the proposed Probate Fee increase enforceable?
Well, maybe not according to a recent report published by the Joint Committee on Statutory Instruments – which suggests that the Ministry of Justice may lack the authority to introduce the proposed charges. The committee is made up of MPs and Peers from Conservative, Labour and Lib Dem parties and, it also includes several cross-benchers. Their report says that the committee: “Draws the special attention of both Houses to this draft order on the grounds that, if it is approved and made, there will be a doubt whether it is intra vires, and that it would, in any event, make an unexpected use of the power conferred by the enabling act.”
It continues: “The Committee is doubtful whether section 180 of the Antisocial Behaviour, Crime and Policing Act 2014 does in express words entrust the Lord Chancellor with the power to impose charges of the magnitude proposed by the draft Order and for the purposes connected with her department specified in the explanatory memorandum.”
Basically, Liz Truss – Justice Secretary and Lord Chancellor who authorised the change in February this year was acting outside her powers. If not outside, then an unusual use of them.
Of course, the MoJ state that it’s only fair and reasonable that those who can afford to make a greater contribution do exactly that. They recently stated that their plans to introduce the changes remain unchanged.
Here at Future Legal Services we can offer you comprehensive inheritance tax planning advice, including the use of trusts to protect your assets and full probate support services for your executors. If you are yet to make your Will or have one that you would like to update please contact us today to discuss your requirements – 01322 664885.