14 Nov 2018 04:55pm

New probate fees are a death tax in all but name

The government’s announcement this week of substantial increases in the fees payable to the Probate Registry to obtain a Grant of Probate or Letters of Administration (needed to take control of a deceased’s estate) was described as a new death tax by the Daily Mail in their front page story

Caption: The new fees are a stealth tax aimed at the wealthier estates
Without doubt, the new fee scheme, due to take effect in April 2019, is a stealth tax aimed at the wealthier estates. The government hopes to raise £145m in 2019-20 alone to pay for court reforms.

The new fees represent a dramatic increase on the current £215 (personal application) or £155 (solicitor’s application) to secure the necessary documentation.

For instance an estate worth over £2m will in future be paying £6,000 and the levy will be applied on a sliding scale on estates worth £50,000 or more, with estates worth less than £50,000 being exempt altogether.

While the new fees are far less than that the £20,000 fee for estates over £2m touted a few years ago, they are punitive for several reasons.

Firstly they open a dangerous precedent for disproportionate court fees given the limited work actually required to issue a grant. The level of work for the court to issue a grant for a valuable estate is usually no more than any other estate.

Secondly this change will leave many estates struggling to pay the fee up-front when assets are tied up in frozen bank accounts or property. Banks will need to allow access to accounts to pay this.

Thirdly my fear is that this “tax” will push people away from using Wills as the means for leaving assets on death.

In order to reduce their estates before death, individuals may increasingly turn to gifting during their lifetime, which could leave them financially vulnerable for the rest of their life and/or see assets passing through an unstructured legacy. For instance a death bed gift prompted by a wish to slip into a lower band for probate fees may see money passing into the wrong hands with limited recourse and be contrary to the wishes in the Will.

Others may attempt to mitigate the probate fee by using the survivorship rules of joint property and joint bank accounts. The survivorship rules see property owned jointly (joint tenants for property NOT tenants in common) automatically pass on death rather than via a Will and therefore the value is not included in the value of the estate at the grant application stage and therefore not included in the calculation for the probate fee. This can be very effective in some cases, such as on first death of a simple estate of a husband and wife. However this automatic inheritance can lead to inequality between children and a misunderstanding as to who gets what in some instances.

I would not disagree with those who have called the new fees a new tax plain and simple. The richer you are at death, the more you pay, and for HNWs this is on an estate already subject to 40% inheritance tax.

While there are many valuable estates which will barely notice this fee increase, this will not be the case for estates between £500,000 and £2 million where the fees will be in the thousands. And of course now that the precedent has been set, it would not be surprising if this tax was used by future Chancellors to squeeze middle England and the wealthy even further.

The author is James Ward, head of Private Client at Kingsley Napley LLP