OTS report supports STEP’s calls for simplification

Simon HodgesThe UK Office of Tax Simplification (OTS) has published its first report of its review into inheritance tax (IHT).  The report, in which STEP is widely quoted, finds that the process for completing IHT forms is too complex and old fashioned, and that too many people are having to fill them in unnecessarily.

The OTS is undertaking this two-part review of IHT in response to the request from the Chancellor of the Exchequer in January 2018. Since the review was announced, STEP has been in regular contact with the OTS. STEP’s response to the consultation was one of more than 3,500 to be submitted to the OTS, with the overwhelming majority seemingly negative about the IHT process.

The report concentrates on the concerns and administrative issues facing the public and professional advisors when confronted with the IHT process and related forms. It includes a number of positive recommendations, such as potentially reducing or removing the requirement to submit forms for smaller or simpler estates, especially where there is no tax to pay; having standardised requirements; and automating the system by bringing it online.

STEP has long argued that the IHT system is too complex, and that any moves to simplify the process, particularly through the implementation of a digital system, will be beneficial for bereaved families.

The Chancellor will now review the OTS recommendations before deciding whether to implement or ignore them. The key recommendation from the OTS, that ‘The government should implement a fully integrated digital system for inheritance tax, ideally including the ability to complete and submit a probate application,’ will be the mostly keenly watched, not least by STEP members.

As the report notes, inheritance tax and probate are closely linked, so it is timely that the OTS recommends that HMRC and HM Courts and Tribunals Service (HMCTS) liaise on streamlining the payment and probate process. As has been widely reported, legislation currently before the UK parliament would see a radical change to the probate fee system in England and Wales, and will mean an increase in fees for the vast majority of families. This approach has already been criticised in the House of Lords, and this latest OTS report further highlights the need to simplify the tax system surrounding death, rather than complicate it further.

We will keep members updated.

Simon Hodges is Director of Policy at STEP

New probate fees: FAQ

UPDATE 21/04/2017: the Ministry of Justice has conceded that the new fee regime has been abandoned due to lack of parliamentary time. See more information.


Newcastle District Probate Registry has supplied the following FAQs to help practitioners implement the new probate fees.

Q. What happens in cases where there is a need for an HMRC Assessment will any delay mean I incur the higher fee?

In cases where you are required to submit an IHT 400 or any IHT document for assessment by HMRC for Inheritance tax purposes then it is possible for you to submit the appropriate forms to both HMRC and HMCTS Probate simultaneously. We will not issue your grant until the approved IHT 421 is received but we will mark your application as lodged. To assist us in not raising this as a query it would be advisable to clearly mark your application that the IHT document will follow after assessment.

Q. Do we have the actual date of implementation?

No we do not have the actual date of commencement yet. However we can assure you that on receiving that date a mail shot will be released immediately informing you of that date. HMCTS Probate would however like to work with you now to ensure that we reduce as much as possible the added burden on applications nearer that date. You can assist us in doing this by following the steps in the mail shot sent to you on Monday 6th March.

Q. How do I calculate the estate value that the fee will be charged upon?

The fee is calculated from the net value of the estate after deducting liabilities or debts from the total of assets and gifts – you can do this using the appropriate Inheritance Tax form.

  • On an Inheritance Tax Summary Online application this figure will be the figure noted in the net estate value box
  • On form IHT 205 the net estate value for fees purposes can be found at Box F
  • On form IHT 207 the net estate value for fees purposes can be found at Box H
  • On form IHT 421 the net estate value for fees purposes can be found at Box 5

Q. What is considered as a full application?

A full application for Probate purposes and therefore to qualify for the appropriate fee is defined as the following. It must include:

  • An full oath sworn by all deponents and commissioners
  • An original will and codicil(where appropriate) endorsed by all commissioners and deponents
  • The appropriate number of correct copy wills an codicils
  • An Inland Revenue account (with the exception of IHT 400’s/421’s where assessment is ongoing and it has been noted on the covering letter that it will follow)
  • All associated documents including any affidavit evidence required at the time of submission, renunciations, Powers of attorneys
  • The appropriate fee.

Upon receipt of an application in this form prior to commencement then the existing fee will be charged.

Settlers and Prelodgements are not considered as full applications and therefore submission of an oath for settling prior to commencement and a subsequent oath after commencement will result in the new fee being applied.

Q: When will the new fees be implemented – at date of death or date of application?

The new fees will apply to all applications received by the probate service on or after the implementation date of the new fees irrespective of the date of death. Any application received within working hours of the Probate Registry before the implementation date will be charged the current fee. Subject to approval of the necessary legislation by Parliament, we expect the new fees to take effect from May 2017, but the exact date will be confirmed nearer the time.

Q Is there to be any equivalent of the IHT instalment option for an asset rich / cash poor estates?

There will not be an instalment option available to pay fees. If the estate does not have enough cash to pay the fee, executors will be able to apply to the Probate Service to access a particular asset for the sole purpose of paying the fee.

Q. How does the new fee affect property held between cohabitating couples?

The law remains the same. Any jointly owned assets (e.g. property held as joint tenants) will not require probate, regardless of whether couples are married, in a civil partnership or neither. All couples are free to choose how they hold their property, and they can change to a joint ownership arrangement via the Land Registry.

Controversial will? Advise your clients on ‘statements of reason’

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Earlier this spring STEP hosted the Tax, Trusts & Estates Conference at a number of venues around the UK. Speakers included Stephen Lawson TEP, Chris Whitehouse TEP, Caroline Bielanska TEP, Steven Kempster TEP, Professor Lesley King TEP, and Lucy Obrey TEP.

Stephen Lawson provided a much needed update on the Inheritance (Provision for Family and Dependants) Act 1975, which has already been amended several times.

Under this Act, a will can be contested if the deceased failed to provide reasonable financial provision for someone who is eligible to bring a claim. If successful, the other beneficiaries will receive less than they were originally bequeathed.

Stephen drew our attention to that fact that these claims could sometimes be avoided with a well-written will and an ancillary ‘statement of reasons’ to support its content. This is particularly prudent where the testator is excluding estranged family members from the will. A statement of reasons that has been carefully drafted by the practitioner, and signed by the testator, will have gravitas and will be considered by a judge when deciding whether to award provision.

Inheritance Act litigation is becoming increasingly common due to people’s demanding financial needs, and claimants will often pursue their claim with a ‘no win no fee’ agreement, so they are not financially encumbered. Regrettably, this type of litigation can potentially delay the administration of an estate by up to three years, which seems unfair to the bone fide beneficiaries.

It is therefore essential that practitioners flag the importance of the Act’s ramifications to testators, and discuss who might be entitled to a claim, so that an informed discussion and statement can be prepared to prevent any unwanted litigation.

Stephen provided a summary of some pertinent cases, such as Ilott v Mitson (2015) EWCA Civ 797. In Ilott the statement of reasons was not determinative. With the benefit of hindsight it could be seen that the statement of reasons that had been prepared was based on negative reasons as to why the claimant should be excluded – it did not emphasise positive reasons as to why the other beneficiaries should have received her bounty – as an illustration, if the testatrix had been a lifelong supporter of animal charities this reason could have carried more weight.

In this case, the court could not establish who was at fault for the estrangement. Stephen stressed the importance of providing a concise and objective statement when a potential claimant is being excluded from the will, in case it is challenged later.

Although a well drafted statement cannot be determinative, a court will take it into account when deciding whether a potential claimant has a valid claim.

Emily Deane TEP is Technical Counsel at STEP

Where there’s no will, there’s a way…

Alexandra BraunSTEP’s Global Congress, coming up in Amsterdam this summer, will be looking into a number of topical issues, including how wealth is being passed on death to the next generations.

Wills do not represent the only way in which wealth is being transferred on death. A person can use a variety of other mechanisms, including donationes mortis causa, joint tenancies, trusts, life insurance contracts, and nominations in pension and retirement plans.

Indeed, today a significant proportion of wealth is being passed through means other than wills and intestacy. This is not just due to tax considerations but to speed up the transfer on death and to shelter assets from claims of creditors and dependants.

This development questions the role and the scope current succession law rules are having in the transfer of wealth, as many of these mechanisms are not subject to the same policy driven rules applicable to wills. Thus, much of the transmission of wealth is no longer governed by the rules of succession.

In the US, these modes of transfer are grouped under the category of ‘will-substitutes’, that is to say instruments that allow for a transfer of wealth outside conventional probate procedures. Although much has been written about the effect of the use of ‘will-substitutes’ in the US, little is generally known about developments in other jurisdictions. And yet, ‘will-substitutes’ are becoming increasingly popular in many jurisdictions.

The aims of this talk are to provide a comparative overview of the most common instruments used, especially in the US and in Europe, and to explore why people transfer their wealth through alternative devices.

We will also explore the potential problems their use is creating for the operation of current succession laws and discuss the consequences that ensue for creditors as well as family members and dependants.


Alexandra Braun, Associate Professor of Law, University of Oxford.