Julia Irvine 23 Nov 2018 01:15pm

ICAEW accuses MoJ of using probate fees as a wealth tax

ICAEW has accused the Ministry of Justice (MoJ) of abusing its constitutional powers with its plans for a massive hike in probate fees

It says that the increases are effectively a tax on wealth and so should be subject to scrutiny like any other tax, rather than using a statutory instrument (SI) to sneak them through.

ICAEW points out that while the current regime costs around £40m to run, the new wealth tax will raise £150m to pay towards the MoJ’s running costs.

“When MoJ first consulted on these changes in 2016, 97% of respondents were against them, yet the department is still going ahead,” said ICAEW business law manager Jane Berney.

“Moreover, the parliamentary Joint Committee on Statutory Instruments (SI), made up of MPs and peers, reviewed the proposals and concluded they were unlawful. They said pushing through the increases by SI was beyond the powers of the Lord Chancellor, as the increase was equivalent to putting a new tax in place as the fees were disproportionate to the service provided.” She added that probate was becoming largely automated so easier and cheaper to administer.

“The question needs to be asked as to whether the MoJ is abusing its constitutional powers. There is no doubt that there is a need for investment but this is effectively a tax on wealth, and should be treated as such.”

Under the current regime, a flat fee of £155 applies to all estates over £5,000 when a licensed probate practitioner applies for probate. This fee increases to £215 when family or friends make a personal application.

Under the new proposals, fees will increase to £250 for estates valued between £50,000 and £300,000 and to £6,000 for estates valued over £2m. All fees will have to be paid upfront by the executor before the assets are sold, something which will hit people living in London and the South East particularly hard because of the higher property prices.

Furthermore the fees will not take into account the inheritance tax threshold of £325,000. This means that families will pay probate fees on the whole amount and IHT on the lesser amount.

The MoJ plans also came under fire this week from the House of Lords Secondary Legislation Scrutiny Committee. It accepted that the size of the fees had come down since the Ministry’s first attempt to increase them, but said that it had not changed its view on the underlying principle, “that the fee bears no relationship to the actual cost of approving the probate application and has the appearance of a tax”.

“That the draft MoJ Order seeks to increase these fees by so much at the same time as laying the Rules (SI 2018/1137) that will reduce the unit cost of an application by an average of £9.30, only services to highlight the committee’s concerns about the disproportionate increase in the fee levels proposed by the affirmative instrument,” it said.