In 2016 the government announced a proposal which increased the probate application fee. Similar proposals were announced by the government in 2016, which would have seen a maximum probate application fee of £20,000 for estates worth over £2 million, and there was a near unanimous opposition to the proposals following a public consultation.
The fee increases were justified by the Government at the time as necessary to fund the courts and tribunal systems in the long term, although this was heavily criticised as a hidden form of "stealth tax" on the basis that no additional work would be required by the court in issuing a Grant of Representation, regardless of the size of the estate. It was argued that the changes simply represented an additional inflated up-front fee to be dealt with by personal representatives who often have no access to the deceased's funds before a grant.
In 2017, a committee of MPs and peers also questioned whether this sort of change was legal, on the basis that the new charges appeared 'to have the hallmarks of taxes rather than fees'. The 2017 proposals were eventually called off ahead of the snap general election, following the wider industry concerns expressed.
Comments on draft legislation
In spite of the history, the issue has resurfaced; draft legislation has been released suggesting that an adjusted set of new increased fees will now come into force, with the aim of generating hundreds of millions in increased revenue for the courts. It is not clear when the government proposes to bring the legislation into force. However, the draft legislation gives 21 days from the date the order is made before the new law will take effect. Following a confirmed order, that will leave just 21 days for anyone wishing to make a probate application under the current flat fee regime to do so and do so quickly.
The current drafting will particularly affect land and business owners, as the estate value for the purposes of the fee will be calculated prior to inheritance tax business and agricultural property reliefs being applied. This will effectively bite twice on estates worth over £2 million, as these estates will also begin to lose their entitlement to the full inheritance tax Residence Nil Rate Band.
The chances of these changes coming in this time are not certain. However, in the current climate of uncertainty over Brexit, these changes may avoid parliamentary scrutiny because the proposals are for the changes to be introduced in a statutory instrument, which does not require parliamentary approval in the same way as a Bill and therefore they could be quietly brought into force, essentially overnight.
Assessed value of estate Fee on an application for a grant or resealing a grant
£50,000 - £300,000 £250
£300,000 - £500,000 £750
£500,000 - £1,000,000 £2,500
£1,000,000 - £1,600,000 £4,000
£1,600,000 - £2,000,000 £5,000
£2,000,000 + £6,000
Next steps
In order to minimise the impact of the potential new probate fees, there are some general estate planning steps which you may be able to take. Such steps include:
Accelerating the administration of an estate - If you are dealing with the administration of an estate, review the timings of the administration and ensure that the process is carried out efficiently before any changes are made to the legislation to avoid any potential increase in fees. For ongoing estate administration, we recommend applying for the Grant of Representation as soon as possible to avoid any increase in fees. You may wish to consider appointing a legal adviser to guide you through the process.
Trusts - Consider settling assets into a trust during your lifetime. A trust could minimise the value of your estate for the purposes of the probate application fee. A trust ensures that the reduced fee is taken advantage of and can also offer other advantages such as asset protection. However, advice should be sought in relation to the tax implications before settling assets into a trust.
Gifts - Consider gifting assets away during your lifetime. to reduce the value of your estate. The probate fee is calculated on the value of assets in your estate at the date of your death, however recently given away. It will of course still be necessary for 7 years to elapse from the date of the gift to an individual for this to be out of your estate for IHT purposes.
Land - Review the ownership structure of high value assets, such as land or property, which can significantly increase the value of your estate. Consider registering land in the names of your children and consider owning land as joint tenants whereby the land passes to the other owner, automatically without need for probate, under the right of survivorship. Care should be taken however to ensure that any such changes are made in conjunction with your Will and to avoid any unnecessary lifetime taxes such as capital gains tax or stamp duty land tax.
We are happy to work with your existing advisors to explore suitable strategies as part of your general estate planning. Do note that careful planning is required to ensure that no lifetime IHT or other tax is payable before taking such steps.
This article is taken from Private Wealth newsletter - December 2018