The Government has confirmed its plans to significantly increase probate fees which are paid when an application for a grant of representation is made following a person’s death. It originally consulted on these issues last year - you can read our comments on the initial proposals together with background information on a grant of probate here.
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.
The proposed banded fee structure remains unchanged from that originally suggested last year, despite strong opposition to the significant increases in the probate charges.
|Net value of estate (before deduction of inheritance tax)||Proposed fee|
|Up to £50,000 (or not requiring a grant)||£0|
|Exceeds £50,000 but not exceeding £300,000||£300|
|Exceeds £300,000 but not exceeding £500,000||£1,000|
|Exceeds £500,000 but not exceeding £1 million||£4,000|
|Exceeds £1 million but not exceeding £1.6 million||£8,000|
|Exceeds £1.6 million but not exceeding £2 million||£12,000|
|Exceeds £2 million||£20,000|
We expect the new fees to be introduced from May 2017 although currently no final date for implementation has been provided. The fees will be charged on the net value of the estate passing under the grant and are a separate charge to inheritance tax.
The Government has justified the increases as a necessary cost to fund a ‘world-class justice system’ and to reduce the costs of HM Courts & Tribunals Service on the tax payer. It plans to raise over £300 million in additional income per year and to use these funds to subsidise improvements throughout the rest of the court system.
The consequences of these changes will be far-reaching and place an increased financial strain on estates. Asset depletion may take place (by lifetime giving or the increased use of trusts) to avoid or move into a lower band for probate fees, with elderly individuals particularly susceptible to these pressures. A return to assets being held as joint tenants prior to the first death to ensure that they do not form part of the estate passing under the grant also seems very likely. Ultimately, such concerns will reduce an individual’s choice as to the distribution of their assets.
The current consultation recognises that probate fees are paid ‘upfront’ before the grant is issued and executors have access to the estate’s funds to pay the new charges. While this is financially manageable at £155, it becomes a significant cost pressure for larger estates especially for those which are asset rich and cash poor. The Government suggests a number of avenues can be used to access funds to pay the probate charge, which include:
- cash in the deceased’s estate (if released by the bank or building society. Discussions are currently being held with various banking groups to review how probate fees could be settled from existing accounts before the grant is issued);
- executors could use their own assets to fund the probate charge or take a loan;
- utilising a new limited grant which will provide limited access for executors to the assets of the estate for the sole purpose of paying the necessary fee.
These solutions emphasise the new financial challenges estates and executors will face before they can even apply for a grant of probate. Married couples or civil partners, for example, who typically pay no inheritance tax on the first death, will still need to find the funds to pay the probate charge. This could significantly erode the liquidity within their estate or even lead to pressure to sell or mortgage the family home.
Ultimately, these increased probate costs place more financial responsibility on executors and could deter some from acting. Individuals will need to consider when they draft their will how these fees will be paid and discuss this with their advisers. Planning opportunities to ease costs are available (such as a review of asset ownership) and we will provide further information on these as the new probate fees are implemented.