You will have seen in the news the UK Government is again attempting to increase Probate fees to cover the cost of reforms to Her Majesty’s Courts and Tribunals Service (HMCTS). The proposed fees, though slightly lower than those considered in 2016, will see the cost of obtaining Grants of Probate increase from a flat fee of £155 per application (when made via a Solicitor, £215 for a personal application) to a banded pricing structure where the fees will increase in accordance with the value of the deceased’s estate.
The fee structure is subject to approval by the House of Commons, but once approved is due to come in force in April 2019.
There is of course great debate on the fairness of this price increase when the administrative costs of obtaining a Grant are already covered by the current fee. However the fact remains for estates which include land or property a Grant has to be obtained to be able to fully administer the estate. Therefore the increased Probate fees will effectively become a further tax that the estate will have to bear.
The concept of tax is something most farming families are familiar with when considering the impact of someone’s death on the farming business. Many farmers will consult with professionals, such as their accountant, solicitor or land agent, to ensure that their farming activities qualify for agricultural property relief (APR) or business property relief (BPR) to reduce the impact of inheritance tax (IHT) on their estates on their death.
However the proposed probate fees are based on the entire value of the deceased’s assets passing under the Grant. Therefore the reliefs available for IHT will not apply when assessing the value of the estate to establish the probate fee payable. To put this into context under the new fee banding structure an estate worth £500,000 to £1 million will incur a probate fee of £2,500. This will increase to £6,000 for estates worth over £2 million. Lower fees will apply to estates below £500,000. When taking into account the market value of farmland and buildings it is likely most farming families will incur a probate fee of at least £2,500 to obtain a Grant.
Like most people, a majority of a farmer’s wealth is held in assets, livestock, dead stock, machinery, buildings and most significantly land. However in a farming family, where a number of generations farm together, the priority is to preserve these assets to enable the remaining family members to be able to carry on a viable farming business. Having to potentially find a further £2,500 to £6,000 just to obtain a Grant could have a serious impact on the business, particularly when you consider all other costs that arise when someone dies such as IHT, funeral costs and probate valuations.
Accordingly the proposed introduction of these fees has brought back into the forefront the importance of succession planning. As a private client solicitor I often speak to my clients about structuring their estates to be as tax efficient as possible. Unfortunately this is no longer going to be enough. Careful conversations will need to take place regarding the ownership of land and other farming assets with the options available in relation to lifetime transfers.
Of course succession planning is not a simple process. There are many potential implications, both from a business perspective and on a personal level, to giving assets away or changing the structure of a business. Therefore decisions of this nature should not be made without first consulting with a suitably qualified and experienced solicitor together with your other professional advisors, such as your accountant or land agent.
These decisions should not be made solely for the purposes of avoiding the increased probate fees but, with careful consideration of all consequences, there may be steps available to help avoid some of the rising costs of dying.