1. What is the current position around probate fees?

The “Consultation on proposals to reform fees for grants of probate, February 2016” (‘the Consultation’) addresses only the fee that is paid for applications for a grant of probate as set out in the Non-Contentious Probate Fees Order 2004 (as amended in 2014).

At present, applications for grants of probate are set at £155 when a grant of probate is sought by a solicitor and £215 when the application is made by an individual. The reason for the discrepancy is the increased administrative work associated with non-lawyers applying for probate. Those fees, whilst payable on grant, are recoverable from the estate as a cost of the estate. However, where an estate is worth less than £5,000 and probate is required no fee is payable. 

Of the 270,000 applications for a grant of probate each year, around 38% are made by individuals and the remaining 62% by solicitors.

2. What is the thinking behind this rethinking of fees?

The ministerial forward to the Consultation contains a startlingly candid admission as to the purpose behind the proposed changes. Put shortly the proposed changes is to:

  1. Increase the income received by the MoJ to offset some of the £1.1 billion deficit between the cost of administering the Courts & Tribunals Service, said to be £1.8 billion, and income derived from it being £700 million; and,
  2. To enable increased funds to be spent investing in the fabric of the court system and improving access to justice.

The intention is to raise an additional £250 million a year some of which will be spent on modernising the Probate Service; a service which is described in the Consultation as being ‘archaic’ and overly reliant on ‘manual paper based systems and aging IT’. Those sums not spent specifically on the Probate Service will be used, amongst others, on digitising the court, installing Wi-Fi to enable legal professionals to work remotely from court, replacing paper forms with online questions and automating much of the administrative process.

3. What is being proposed and how might this affect practitioners?

The first proposal is a new online service to make the process of applying for probate simpler. It is intended that the new service will work alongside the online process for paying inheritance tax. The service is to be phased in from April 2016 and should be completed by April 2017.

The second and more significant proposal sees fees linked to the value of the estate. This was the position before the flat rate fee was introduced in 1999. Prior to 1999 the fee for general grant was £250 for an estate worth £100,000 (i.e. 2.5% of net value), increasing by £50 per £100,000 (or part thereof) for estates worth £100,000 and above. There was no cap. It is estimated that, had this system remained in place up to the present day, the annual takings would be some £120 million per year, around £75 million more than is recouped under the present flat rate scheme.

The proposed scheme differs from that which existed pre-1999 in that, rather than charging a fee which is a direct function of the value of the subject estate, it comprises a simple band structure.

The band structure is set out below:

Click here to view the table

The primary points to take are as follows:

  1. At present only estates worth less than £5000 are exempt from paying a fee. This limit has not been changed since 1999. The proposals above sees the exemption increase to estates up to £50,000 which means 57% of estates would pay no fee at all;
  2. A further 27% of estates would see their fee rise to £300, an increase of £85 on the current personal applicant fee of £215;
  3. It is anticipated that 94% of estates would pay £1000 or less.

The effects on practitioners will be muted. It will obviously be incumbent on practitioners advising clients with respect to estate planning of the increase in fees. Equally, where, as in the majority of cases, probate is taken out by a solicitor it will incumbent on them to ensure that necessary provisions are in place to enable them to pay the fee. This ought not to be too obstructive. Generally speaking 25% of an estate is held in cash which should enable an executor to access funds to pay the fee without having to take any form of bridging finance.

4. Does the scale of the increase represent a threat to access to justice?

Generally no. Interestingly, the current flat rate position actually has the effect of disproportionately affecting small estates. Moreover, the proposals would see 84% of estates paying £300 or nothing. That said, the increases in the fee payable is worthy of censure. The proposals see a 66% increase in the fees payable as the £2 million threshold is crossed. Quite why the increase should be so steep rather than operating on a phased or tempered scale is unclear. Either way it does seem rather unfair that an estate worth £2.01 million should pay so much more than one worth £1.99 million.

5. Could this have wider effects on estate planning?

Again, this seems unlikely. The absolute effect is clear; increased finance will be required for a grant. However, when this is allied to the changes in the inheritance tax changes it is thought that any negative effects on high worth estates will be easily countered. Specifically the new IHT proposals which are being phased in from 2017 will see an additional nil rate band of £175,000 be added to the present £325,000 when a residence is passed on death to direct descendants (children, step-children and grandchildren). These changes will, where an estate contains property which the vast majority will do, dwarf the proposed fee increases above.

This article was first published on Lexis®PSL.