Probate Court Fees
The Government seems hell bent on taxing estates by the back door. Not content with a 40% inheritance tax bill and allowances that have barely increased since 1986, we are now faced with an impending massive hike in probate court fees. This is a fee that is payable to the Probate Registry for processing the application for probate. It is presently payable at a fixed rate of £150 regardless of the size of the estate. The smallest estates pay no fee at all.
The proposal, which seems certain to make it into law, introduces a progressive fee structure. The larger the estate, the more you pay with the highest band of estates over £2m attracting a whopping £6,000 court fee. Not unreasonable as presumably there is more work for the Probate Registry to do with a larger estate? No – the process and workload is precisely the same as a smaller estate. In fact it is arguable whether larger estates are easier for the Registry to handle as they tend to involve solicitor applications with well drafted wills. The harder cases for the court officials are those where the general public make the application without professional assistance and there is no will or one that is homemade and may be problematic.
If, despite these arguments, the logic is that larger estates should pay more then what about the level of the increase? What would be a reasonable figure – inflationary at around 2%? No – for estates above £500,000 the fee goes from £150 to £2,500 and for those above £1.6m it is £150 to £4,000. That is a huge % increase. What can the justification be for these increases? Have civil service salaries increased to this extent, pension costs, the running costs of the court buildings? Highly unlikely bearing in mind the court modernisation process will see fewer courts and more reliance on IT with efficiency savings to come. No, this is a tax by the back door on what is perceived as a “soft target” with few votes at stake at the ballot box.
Now when a goverment seeks to raise taxes there is a convention that it should do so by primary legislation or Act of Parliament. So that is what has happened here right? Wrong. The Government are seeking to impose the new fees by statutory instrument which is in effect a diktat from a Minister with minimal Parliamentary scrutiny. This is the second time the present Government have tried to introduce the probate court fee increase (the first time they were thwarted by an early election) so it seems to be inevitable whether we like it or not. This begs the question what can be done to reduce or remove the worst effects of the increase?
- Know the size of your own estate. Add everything up and take away the debts right? Unfortunately it’s not that simple. Some assets such a pensions and jointly owned investments and property held as “joint tenants” (eg a couple’s joint bank account) do not fall into your estate for probate purposes. Remember, just to confuse matters there are different rules for inheritance tax and you will need to think about those if your estate is worth more than the relevant threshold (ie £325k or £475k or up to £950k for a couples’ estate which includes a property they are leaving to their children).
- Calculate the likely probate court fee. Is it high enough to make you think about taking action? The fee has to be paid before applying for probate. Where will the money come from to cover that when there are already likely to be cashflow issues with a funeral to pay for?
- If the answer is yes then you should now be consulting your solicitor. They will be able to advise you on the best way of reducing your estate to bring it within a probate court fee band that you and your family would be comfortable to pay.
- Beware the DIY approach. This can bring about adverse effects such as leaving you short of money, affecting your right to live in your own home and even give rise to unintended tax consequences with a bill to pay in your lifetime, after your death or if your family try to sell an asset that had previously been owned by you.
To summarise, most estates do not pay any tax at the moment. The new fee structure is a tax in all but name and its introduction is about to change all that. A typical estate would be valued at £550k. Under the old system the fee would be £150. Under the proposed increases that will pay £2,500 or to put it another way, tax at a rate of 0.455%. If the estate is also subject to IHT then this will simply compound the problem.
Time to act? Speak to Mark, Jane or Laura in the Tolhurst Fisher Probate Department who will be happy to meet you for an initial consultation and review your options.
Author: Mark Francis