Probate fees: how we got to where we are

Emily Deane TEPFollowing the news late last week that the UK government is scrapping its plans to hike probate fees, Emily Deane TEP looks back on an eventful 15 months for STEP and practitioners.

February 2016
In February 2016 the Ministry of Justice (MoJ) issued a consultation paper on reforms to the fee system for grants of probate. The paper proposed to increase the fees for estates of over GBP50,000, with a banded fee structure depending on the estate value. Larger estates faced a 13,000 per cent rise to GBP20,000.

STEP strongly opposed the new system on the basis that the proposed fee would be completely disproportionate to the service provided by the probate court, and would effectively be a new tax on bereaved families.

We raised concerns on the grounds of fairness, practicality and legality, in particular that the new measures being introduced via the Draft Non-Contentious Probate Fees Order 2017 may be ultra vires, i.e. beyond the power of the order.

The consultation was widely circulated, with over 97% of respondents opposing its proposals. Then the matter went quiet for almost a year.

February 2017
On 24 February 2017, STEP received notice from the MoJ that, subject to parliamentary approval, and despite overwhelming opposition to the proposals, the new fee system would be implemented in May 2017: just weeks away.

Concerned that this would have a huge impact on bereaved families and their legal advisors, we set out to highlight the issue to ministers, the media and the public.

We contacted the MoJ highlighting our concerns and requesting a meeting. We received no reply, with the MoJ remaining extremely quiet on the issue. No clear information was posted highlighting the new fee structure to the public, with a discreet link to the consultation response on the gov.uk website the only notice that these changes were coming.

We therefore sought to raise public awareness of the issue, issuing press releases and explaining our concerns to the media, and developing guidance for members of the public.

Our work paid off, with national media including BBC Moneybox, the Daily Mail  and the Mirror  covering the issue. Our guidance for the public was viewed nearly 2,600 times and our social media channels were buzzing with activity.

April 2017
Then at the beginning of April we heard that the influential House of Commons Joint Committee on Statutory Instruments had questioned the legality of the proposals, given that the new ‘fees’ looked very like taxes. But while hopes were raised, the government continued to push forward with no changes to its plans.

Concerned that the issue would not be given proper scrutiny, STEP obtained a legal opinion from leading expert in public law, Richard Drabble QC, who agreed with the SI Committee’s findings and confirmed that ‘the proposed Order would be outside the powers of the enabling Act’.

Then, on Tuesday 18 April, Prime Minister Theresa May called a snap election. The pressure was suddenly on to get all orders through before parliament was dissolved.

On Wednesday 19 April the House of Commons Second Delegated Legislation Committee rushed though the Non-Contentious Probate Fees Order 2017 meeting at 8.55am, with no advance warning that it would be tabled that day. It was approved 10 to 2.

On Thursday 20 April we finally received a response from the MoJ to our earlier letter, dismissing our concerns and advising that the fee changes would be going ahead.

We understood that the Lords were due to discuss the matter on Monday 24 April, so we immediately sent the legal opinion to senior politicians in the House of Lords to inform the debate.

Later that evening press reports suddenly emerged that the proposals were to be dropped, and the next day we received a bulletin from the MoJ stating: ‘There is not enough time for the Statutory Instrument which would introduce the new fee structure to complete its passage through parliament before it is dissolved ahead of the general election. This is now a matter for the next government.’

Success…for now…

Our effort, and those of practitioners across the country, to highlight the issue had paid off. The legal uncertainty highlighted by Richard Drabble QC, combined with the media attention, meant that it could not be pushed through the Lords in time.

We have since heard from senior sources in the Lords that the subject may re-surface as primary legislation post-election, in which case it would need to be approved by both Houses of Parliament. We presume it would be re-introduced as a new tax, rather than an increased fee. If so, the funds will go to the Treasury, not the MoJ.

STEP will continue to work closely with our members and the media to increase awareness of the matter, although we sincerely hope it will not re-emerge in a different guise.

Emily Deane TEP is STEP Technical Counsel

HMRC consultation on 4AML implementation

Emily Deane TEPHMRC invited STEP to attend a consultation on 30 March regarding the UK’s implementation of the EU Fourth Anti-Money Laundering Directive (4AML), in particular in relation to the requirement to implement a central register of trusts.

The consultation was hosted by HMRC’s Policy Specialist, Tony Zagara, and focused on Article 31 – trust beneficial ownership. The UK trust register will be implemented on 26 June 2017 and will register trusts anywhere in the world with UK assets that generate tax consequences.

Information about the settlors, beneficiaries and trustees will be required to be reported in an annual submission and the information could be exchanged with law enforcement and competent authorities, but not the public. The focus group discussed the following key issues:

New registration system

The old paper registration system will be replaced with an online service for registration, which will be introduced in two tranches in June and September. The June online service will replace Form 41G for registering new trusts. Form 41G will be removed from HMRC’s website later this month.

The second online service will be introduced in September, which will allow users to make amendments to existing trusts online, further replacing the paper system.

Annual reporting

The trustees will need to report on the trust on an annual basis, but only if it generates tax in that tax year. HMRC was unable to clarify whether, once a trust has been registered with a tax consequence, it is still necessary to submit annual updates in the following years if it has been dormant and has not generated any further tax consequences.

The panel agreed that annual reporting would probably not be necessary if there have been no changes since the first registration, however they agreed to check and revert back on this point.

Bare trusts will be excluded from reporting and new guidance will be produced on HMRC’s landing page in due course.

Letters of wishes

HMRC said trustees should report the identities of beneficiaries who are named in letters of wishes. Every person named in a letter of wishes would need to be identified, regardless of whether they have received a payment, unless they are included as a ‘class’ of beneficiary.

Practitioners were quick to point out that this could be an impossible task for trustees.

They explained to the HMRC panel that if beneficiaries have not received payments they cannot be associated with money laundering, and if they do receive a payment they will be reported anyway under the regulations. Letters of wishes can also be changed frequently and, more often than not, without the advisor’s knowledge.

HMRC defended the reporting obligation by suggesting that letters of wishes could be used as a loophole for criminals if they were excluded from the regulations.

The general consensus of the attendees was that the word ‘vested’ should be incorporated into the definition so that default beneficiaries in letter of wishes are excluded from being reported on unless they receive a payment.

HMRC will be feeding back the discussions from the consultation to its legal team to redraft the regulations.

Consultation deadline

HMRC’s consultation paper was published on its website (see below) and the consultation closes on 12 April. HMRC is requesting responses as soon as possible since there is a short time frame following the closing date. If you have any drafting points to be incorporated in STEP’s consultation response, please email Emily.Deane@step.org by 10 April.

Emily Deane TEP is STEP Technical Counsel

Probate fees – will common sense prevail?

George HodgsonThe government’s threat to radically increase probate fees next month (Probate fee rise ‘a new tax on bereaved families’) may be receding, following a meeting of the House of Commons Joint Committee on Statutory Instruments on 29 March.

Using some very welcome common sense, the committee raises the issue (para 1.12) that it is a constitutional principle that there should be ‘no taxation without the consent of Parliament’. This is something I suspect 99% of people will agree with.

It finds that the proposal from the Ministry of Justice (MoJ) is clearly a tax, not a fee, in every normal definition of the term, and should therefore be subject to full parliamentary scrutiny, rather than brought in via the back door through a Statutory Instrument.

The committee also finds (para 1.13) that ‘charges’ of the magnitude proposed by the MoJ were probably never envisaged when the original legislation the government was attempting to use here was approved. In other words, using this process is an abuse.

We would hope that this will provide an opportunity for the government to re-think its approach, which was criticised by over 90% of those responding to the consultation, and submit re-worked proposals for proper scrutiny by Parliament.

• Joint Committee on Statutory Instruments: Non-Contentious Probate Fees Order 2017

 

George Hodgson is Chief Executive of STEP