In summary, the changes which have been proposed from May 2017, will mean zero court fees for estates valued below £50,000, but increased court fees for estates above that figure, up from the current £155 for a solicitor’s application, on a sliding scale starting at £300 and ending at a massive £20,000 for estates valued above £2million.
In this blog, I want to consider the planning issues that surround this proposed change, and to ask if several features – already seen in nations which have high probate fees – are likely to become part of our legal landscape in the near future.
- Are deathbed gifts going to be a feature? Deathbed gifts are sometimes done, for various reasons – often sentimental ones – but they are rarely tax effective, because our system taxes gifts made within seven years prior to a death. However I wonder if we are going to see people who expect to die shortly offloading their assets to their families, in order to avoid the probate court fees. People need to be advised to take care if they are tempted to do this, and to know the specific consequences before going ahead. In certain circumstances, for example, a deathbed conveyance of a property could easily cost far more in SDLT and Capital Gains Tax than the probate court fee would have been.
- Are joint tenancies going to become fashionable again? There are two kinds of joint ownership of property: a joint tenancy (where the death of an owner automatically vests the property in the survivor(s)) and a tenancy in common (where the deceased owner’s share forms part of their estate). Of these, joint tenancies are most common because most joint owners are couples living together. Until about a decade ago, lawyers like me would often advise their clients to switch from being joint tenants to being tenants in common, because at that time there were tax advantages. This advice changed in 2008. But I wonder if we are now going to see the opposite phenomenon. Will we be advising clients to switch to being joint tenants so as to avoid the property counting towards the probate court fee? Could we even see extreme situations where people enter into joint tenancies with their heirs (such as their children) to ensure that the property passes automatically, without probate? I know that I will not be advising my clients to do that there are many disadvantages, some obvious and others less so – but I would not be surprised to see it happen.
- Will there be insurance available to cover the fees? I am confident this will happen and will be invaluable where estates are not liquid (comprising mostly real estate).
- Are ‘Probate Avoidance Trusts’ going to become prevalent? This is a very common feature in the USA, where (among others) trusts known as “revocable trusts” are widely used, even though they are not tax effective, because they enable assets to be titled in the name of trustees, as a consequence of which they do not pass through probate. Revocable trusts along the American model probably do not work in the UK. But I do envisage clients creating, for example “bare trusts” over their assets: again, not because they are tax effective (they are not), but because they are not-tax-ineffective (as many trusts are) and they enable assets to be held in the name of a party other than the owner, thereby bypassing probate, and not counting towards the probate court fee, upon the death.
- Will there be anti-avoidance measures? We expect executors will be required to inform the probate registry if the figures they submitted are later found to be incorrect. We expect HMRC will be providing the registries with details when their figures change, too. Expect, also, to see measures introduced to combat deliberate fraud.
I do not think the very wealthy will be much concerned with this problem. Similarly I think families with less than £300,000 would be unwise to rearrange their lives to avoid the new court fees. But I do think people in-between will be shocked by the severity of the new fees and will be looking for strategies to avoid paying them.
This blog is speculation, only. I do not yet know whether the strategies discussed in it will be effective to avoid the proposed new probate court fees, and, even if they are, whether they will become widespread. I do know, however, that there will always be risks attached, and that professional advice will always be needed.