As many of you will have seen reported in the STEP UK News Digest and elsewhere, the Ministry of Justice recently issued a consultation paper with its proposals to reform application fees for grants of probate in England and Wales (see news story).
While STEP supports the Ministry of Justice’s proposal to modernise the courts and tribunals system and to transition from a paper system to an online system, we are very concerned that this investment is enabled at a steep cost to the public while incurring additional stress for bereaved families.
STEP has submitted a formal response to the Ministry of Justice, as well as meeting with representatives to express our concerns and to help find alternative solutions. For members’ information, we have included a brief summary of our main concerns below.
- The proposed fees do not bear any relationship to the service provided by the probate court, and are simply proportionate to and rise with the value of the estate, to the disadvantage of families with estates valued over GBP300,000. The proposed fee therefore appears to be an ad valorem tax as opposed to an administration fee and bears no relation to the cost of processing the application. Why does the fee scale differ so markedly from, say, Land Registry application fees and the Court of Protection application fees, which involve a similar administration processes?
- The government asserts that the benefit of the additional nil-rate band in 2017 will outweigh the increased probate fee, however there is no corresponding benefit or interplay with IHT rates and the probate fee is simply a significant and additional cost.
- We are concerned that the payment of the fees could be problematic for law firms that would normally pay the fee up front on behalf of the executors. If a firm has several active probate applications on the go at the same time, it may not be financially viable to cover all probate application fees.
- If it is not viable for the law firm to pay and if there are limited cash funds available in the deceased’s estate, then the executors will have to apply for a bridging loan to finance the payment using the estate as security. We anticipate that the financing will incur further delay, cost and administrative burden to the detriment of the executors and the beneficiaries. In practice it may also prove difficult to obtain bridging loans for this purpose due to money laundering requirements.
- It may become a common scenario that the executors and beneficiaries are forced to sell the house in order to raise the requisite funds. A common example of a cash-poor estate would be a surviving pensioner who has nominal cash available to pay the fee, particularly if cash has already been depleted due to nursing home fees, and he or she may be forced to sell the home. There will also be farmers who are land rich but have very little cash and will be unable to produce the GBP20,000 or more from the estate. Children in their 20s and 30s may have been left the family home but will not have access to the GBP20,000-plus required in order to obtain the grant. Not to mention, of course, the charities that will be penalised by having to deduct a sizeable amount from the legacy.
- This scenario will be a significant deterrent to a potential administrator if the estate is intestate and needs to be administered under the rules of intestacy.
- People may be deterred from agreeing to act as an executor in the will-drafting stage or may revoke their appointed executorship post death.
- We anticipate that if the proposals are enforced, the public will endeavour to arrange their assets in a manner that will avoid the need to obtain a grant of probate, for example by:
- putting their assets into joint names, as joint tenants, with their intended beneficiary whether it be their spouse or children to mitigate the application fee (with the undesirable consequence of increasing the number of vulnerable people being persuaded to ‘gift’ their property to others in order to avoid the probate fee);
- transferring assets out of the UK to remove them from their UK estate; or
- ring-fencing property and assets in trusts and foundations.
This could result in a potentially huge loss to the government in probate fees, and more significantly, IHT tax revenues.