Probate documents- last will and testament, inventory of estate, keys

Probate fees increase: another death tax?

When the government consulted on possible increases to probate court fees last year there was widespread opposition from the solicitors’ profession. Despite the overwhelming disagreement expressed by the respondents to the consultation, the government has confirmed that the proposals are to go ahead from May. We look at the changes.

From flat fees to percentage value fees

At present, a flat fee is payable on a solicitor’s application for a grant of probate or letters of administration of £155 whatever the size and complexity of the estate. From May this fee will vary, depending on the size of the estate, which is assessed before deduction of inheritance tax. The threshold for exemption from fees is to increase from £5000 to £50,000, so more estates will pay no fee at all, but larger estates will see huge fee increases. For example, an estate valued at £600,000 will pay a £4000 fee, while an estate with assets worth above £2 million will pay £20,000; a massive hike on the current £155 fee.

This fee will be payable before the executors have access to the estate’s assets. This means that the fee will have to be funded personally by the executors or beneficiaries, or a loan will need to be taken from a commercial lender, unless there are joint assets or a bank account with sufficient funds in it that can be accessed for this purpose before the grant is obtained. The fee is not deductible when assessing the amount of inheritance tax due.

As far as the probate registry is concerned, the work involved in processing a grant application is the same whether the estate is worth £60,000 or £600,000. In fact, the work involved can be greater if a testator with a lower value estate has made a homemade Will. Although a £2 million estate is a large one (comprising only 0.5% of all estates in England and Wales) the probate court fee could prove difficult to find when the majority of the estate is illiquid (a farm, for example) potentially causing extra stress for the deceased person’s family at an already difficult time.

In its consultation response the government states that the fees reform will deliver £300 million in additional income per annum which will be “a substantial contribution to the running costs of Her Majesty’s Courts Service.” The probate court service is itself self-financing so this fee-hike will provide a subsidy to other parts of the courts service.

Should you take any action?

It would be tempting following this announcement for a couple to transfer all their assets into joint names. Assets held jointly pass automatically to the survivor and do not form part of the estate on which the probate fee is payable. However, it should be remembered that assets are often held in the sole names of each of a couple for many reasons including estate planning, asset protection and income tax planning during lifetime.

We would not recommend that you take any action without considering the knock on effects on your overall estate planning. However, if you anticipate that your estate will be liable to pay a large fee, it would be sensible to give some thought as to how this should be funded. This might involve simple measures such as retaining sufficient funds in a bank account which could be used if necessary.

If you would like further information from us on this subject, or any other private capital matter, then please get in touch.