If the proposed probate fee increase becomes permanent, the possibility of future hikes cannot be ruled out, says Dawn Joughin, and so professional advisers need to inform their clients of the implications
Alongside the proposed changes to National Insurance Contribution (NIC) levels, the increase in probate fees was a prominent feature of the recent Budget. And, much like the negative reaction that forced an immediate U-turn by Chancellor Philip Hammond over NICs, the new probate fee schedule is running into trouble.
It has been thrown into disarray by a report from the influential parliamentary joint committee on statutory instruments, which concluded the new fees bore the "hallmarks of taxes rather than fees." The Lord Chancellor, it added, "is not permitted to impose a tax".
In response, the Ministry of Justice said: "Our plans to introduce new probate fees remain unchanged. We will introduce a fairer system, meaning over half of estates pay nothing and over 90% pay less than £1,000. They will be considered in parliament after Easter and come into force as soon as possible."
The idea was unpopular long before the Budget announcement. When lawyers were first consulted about the proposal in February 2016, an extraordinary 98% of them disagreed with the plans. After the budget, several MPs on the government's own benches criticised the move with one labelling it a "death tax".
The new levy is scheduled to take effect in May. Treasury estimates predict it will deliver £1.5bn over the next five years - money that will be specifically applied to fund the courts and tribunal systems.
In monetary terms, the scale of the hike is remarkable when compared with the current flat fee - £155 for obtaining the Grant of Probate through a solicitor, or £215 if made in person. Fees are to be determined on a banded structure with a cliff edge at each threshold: above £300,000 - £1000; above £500,000 - £4,000; above £1m - £8,000, and above £2m - £20,000.
The Ministry of Justice originally described it as "a fairer banded system", adding it was "necessary to maintain an accessible, world-leading justice system which puts the needs of victims and vulnerable people first".
However worthy the cause, however, there is no increase whatsoever in the work involved in processing an application for a Grant of Probate. It remains exactly the same, no matter what the value of the estate. The idea that probate charges should be proportionate to the cost of work done has therefore disappeared.
Instead, it joins inheritance tax as another death tax with ramifications for the elderly and other vulnerable individuals. Financial difficulty can also be caused because the probate fee has to be paid upfront before executors can access the assets of the estate and seek reimbursement.
Although a similar upfront payment applies to inheritance tax, this has an exemption for an estate passing to a surviving spouse, civil partner or charity. No such exemption applies for the probate fee.
Cashflow can therefore become a real problem for beneficiaries with limited means. When a house is invariably the principal asset in the estate, the number of people in this position is magnified by high residential property prices - notably in London and the South East. Many more estates will therefore be eligible to pay substantial probate fees.
The detrimental consequences were foreseen by Solicitors for the Elderly. Last month, one of its members launched a petition - "to reconsider the proposed significant and unreasonable increase in probate fees" - hoping to attract the 100,000 signatures needed for a parliamentary debate on the topic. The petition likens the new fees as being equivalent to the cost of a small family car.
Lawyers have been hurrying to get applications accompanied by the existing fee submitted to the probate registry before the May deadline - if accepted in time, this would avoid the new fee schedule. As a consequence, HMRC is under pressure, with many applicants anxiously awaiting their stamped forms of receipt.
For the living, there are several options to mitigate the cost to their estate and, in particular, to the ultimate beneficiaries. The most obvious way of reducing the probate fee threshold is to gift assets before death, thereby reducing the value of the estate. A common alternative method is to put assets in trust. A life assurance policy can also be written in trust, paying out on death to deal specifically with probate fees.
In the wake of the parliamentary joint committee report, there is now some doubt over whether the new probate fee schedule will become a permanent feature of the landscape. If it does, the possibility of future increases in fees cannot be ruled out and it is therefore incumbent on professional advisers to inform their clients of the implications.
Dawn Joughin is a private client lawyer at Excello Law. A member of Solicitors for the Elderly, she has specialised in wills, trusts, estate planning and administration, lasting powers of attorney, court of protection matters and funding care for the elderly for more than 13 years.
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