The Government has announced its plans to substantially increase the probate fees that are paid when an application for a grant of representation is made following a person’s death.
A grant is the document that confirms the appointment of the executors under the terms of a valid will or gives authority to the administrators to act where there is an intestacy. It is the document that unlocks assets following a person’s death as it gives the executors or administrators the authority to deal with the deceased’s bank accounts, investments, property and other assets. Unless the value of the estate is very small, it is normally necessary to apply for a grant.
At the moment, there is a flat fee of £155 when an application for a grant is made by a solicitor or £215 where the application is made by an individual. Where a grant is required but the net value of the estate is below £5,000, no fee is payable.
Between 1981and 1999 the probate fee was linked to the net value of the deceased’s estate. The Government is now planning to return to this approach, although implementing significantly higher charges especially for wealthier estates. Under the new proposals, the flat fee will be replaced by a tiered system which will result in a probate fee of £20,000 for estates worth more than £2 million. There is no graduation of the fees between levels; if an estate just falls over the £2 million mark it will pay the full £20,000 fee.
The proposed probate fees are:
Click here to view table.
The proposed hike in the probate fees is part of the Government’s review of Her Majesty’s Courts and Tribunals Service (HMCTS) and is a bid to raise an additional £250 million a year in order to improve and streamline the current HMCTS and to reduce the costs of HMCTS on the taxpayer.
The facts and figures provided in the consultation document make interesting reading; the Government is using these new charges to subsidise change in the rest of the court system. Currently the probate service is (at worst) cost neutral to the Government. By not charging estates of up to £50,000, the revenue lost (on current charges) is approximately £5.5 million. The Government is investing £140 million on average each year for the next five years to improve and streamline HMCTS. Given the above figures, it is no wonder these charges are being viewed as a stealth tax on the recently bereaved.
Concern has been raised as to whether asset depletion (by lifetime giving or the increased use of trusts) will be further utilised to avoid probate fees, with a specific fear that pressure may be applied to elderly and vulnerable clients. This could also be particularly relevant for those whose estates just fall into a higher rate fee band. The writer’s view is that this is more likely for inheritance tax purposes at a maximum charge of 40% rather than for probate fees at a maximum charge of 1%. A return to assets being held as joint tenants prior to the first death to ensure that such assets do not form part of the estate passing under the grant seems very likely. However, this reduces an individual's choice as to the ultimate distribution of their assets.
The Ministry of Justice advises that executors and solicitors’ firms currently pay the fee “upfront”. Whilst this may be economically viable at £155, it is most unlikely at £20,000. The cost of borrowing this £20,000 will also be another expense of the estate, which will have to be funded prior to a grant being issued. This is in direct contrast to inheritance tax, which may be paid in instalments on certain significant assets, particularly the family home. Also, on the first death of a married couple or civil partners there will often be no inheritance tax to pay. However, there will still be a probate fee to pay before a grant can be obtained, which could significantly erode the liquidity within the estate and in certain circumstances could result in the family home having to be sold. This will have a considerable impact in the South East in view of the increase in property prices in recent years.
The paperwork emanating from the Probate Registries in a £10,000 or a £10 billion estate is not appreciably different, again making it difficult for the proposed increase in the probate fees to be justified.
Therefore, we consider that these proposed increased fees are unfair, unjust and underhand.
The Government is seeking views on the new proposed fee regime, and the consultation will end on 1 April 2016. We expect that the new fees will be introduced very quickly if, as anticipated, they are approved by the Government.