In April 2017 we wrote that the Government had scrapped plans for a controversial rise in Probate Fees ahead of the general election. However, similar plans are now back on the table and the Government is hoping to introduce them in April.
These plans are not yet set in stone and many in the profession are lobbying MPs to protest against the proposals when they are considered by the House of Commons. If the proposals are implemented, the cost of obtaining probate will increase substantially for many bereaved families, with mid-sized estates being the most affected in terms of the percentage of fees payable on an estate.
Stealth tax
As with the previous plans two years ago, there is a significant question raised over whether or not these proposals amount to a misuse of the Lord Chancellor’s powers. By introducing them as fees as opposed to a tax, they avoid rigorous parliamentary scrutiny. For this reason, the new fees have been labelled a ‘stealth tax’.
The government makes no attempt to disguise the fact that the new fees are intended to subsidise the rest of the courts and tribunals service and, reflecting the views of many, the Law Society has commented that “It is unfair and discriminatory to expect the bereaved to subsidise other parts of the courts and tribunal services.”
What will the new fees be?
Currently for estates over £5,000 a £215 flat fee applies, or £155 if a solicitor applies. This fee is intended to cover administrative costs. The Government’s proposals introduce a sliding scale of fees as set out below:
- Up to £50,000 – no charge
- £50,000 to £300,000 – £250
- £300,000 to £500,000 – £750
- £500,000 to £1 million – £2,500
- £1 million to £1.6 million – £4,000
- £1.6 million to £2 million – £5,000
- Above £2 million – £6,000
Whilst there is no certainty that these new fees will be introduced in April, we must work on the basis that they will. Therefore, if at all possible, it is necessary to ensure that applications for probate are made before April to take advantage of the lower fee.
Funding
Funding these new fees may become a real issue for some applicants. Along with funeral expenses and inheritance tax, these fees must be paid ‘up front’ by the executors before probate is granted and the estate can be dispersed.
In some cases, it is possible to use cash from the estate, for example from a bank account, specifically to pay these fees. However, if there is insufficient cash in the estate then the burden falls on the executors.
In a not uncommon scenario where there is a high property value but little available cash, the executors may have to pay the probate fee upfront themselves and seek reimbursement when the property is sold, which could be several months later. In some cases this may necessarily involve taking out an expensive short-term loan.
For this reason, if the fees increase does proceed, it may be that estate planning will also have to include probate fees in addition to planning for inheritance tax and care home fees.
Charities
The fees increase will also hit the charity sector, a significant proportion of whose income is derived from charitable bequests in Wills. This is because higher fees will reduce the amount of the estate available for beneficiaries. It is estimated that the fees’ changes would result in an annual loss of income to this sector of £10 million.
Contact
If you are concerned about these changes, or have any other questions regarding wills, estate planning, probate or the administration of an estate, please contact Swindon Wills and Probate Solicitor Megan Phillips on 01793 615011 or email her at megan.phillips@blbsolicitors.co.uk