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

New probate fees: a guide for the public

flowers

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

What is probate?
When someone dies, you need to get the legal right to deal with their property, money and possessions, and to do so you need a grant of representation, which is known as ‘probate’.

When is probate not needed?
Usually you won’t need to apply for probate if the estate does not include land, property or shares; if it is passing to a surviving spouse or civil partner because it was held in joint names (e.g. a joint bank account, or a home owned as ‘joint tenants’); or if the estate is valued at less than £15,000.

Each financial institution has its own rules, however, and may still require you to apply for a grant even if the value is under this threshold.

What is happening to probate fees?
In February 2017, the government announced that probate fees in England and Wales will change in May 2017 to a banded system, where fees increase with the value of the estate, replacing the current flat fees of £155 if you apply through a solicitor, or £215 for a personal application.

The proposal to link probate fees to the value of the estate was published in February 2016 and attracted overwhelming opposition. Nonetheless, the new system has been brought in, and was confirmed in the March 2017 Budget.

The fee structure as of May will therefore be as follows:

Value of Estate New Fee % Change (from £215)
Up to £5,000 £0   0%
£5,000 – £50,000 £0 -100%
£50,001 – £300,000  £300  +40%
£300,001 – £500,000  £1,000 +365%
£500,001 – £1m £4,000 +1,760%
£1m – £1.6m £8,000 +3,621%
£1.6m – £2m £12,000 +5,481%
Over £2m £20,000 +9,202%

When in May does the change kick in?
The government has not yet confirmed the exact date in May from which these changes will apply. The new fees will apply to all applications received by the probate service on or after this still-to-be-announced date in May, irrespective of the date of death. Probate registries have said that any application received within working hours of the Probate Registry before the implementation date will be charged the current fee.

What can you do?
Applying for probate takes time as you need to gather a number of documents and all the relevant information regarding the value of the estate to ensure any inheritance tax obligations are correctly accounted for. If you are very recently bereaved it may therefore be very difficult to submit a full application for probate before the new fees are implemented.

If, however, you have already started the process, you may want to try and get your probate application in before May to ensure you pay the current flat fee.

If you are applying for probate through a solicitor, your solicitor will be aware of the situation and will be doing everything they can to try to get your probate application lodged with the probate registry before the new fee structure applies.

If you are making a personal application, you should be aware of a few important points:

  • In cases where you are required to submit an IHT400 or any document for assessment by HMRC for inheritance tax purposes, many probate registries have said that it is possible for you to submit the appropriate forms to both HMRC and HMCTS Probate simultaneously. They will not issue your grant until the approved IHT421 is received, but the probate registry will mark your application as lodged. To assist them in not raising this as a query, they have advised that you clearly mark on your application that the inheritance tax document will follow after assessment.
  • A ‘full application’ for probate purposes, and therefore to qualify for the appropriate fee, must include:
    • 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 and codicils
    • An Inland Revenue account (with the exception of IHT400s/421s 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 attorney
    • The appropriate fee.

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

  • If the estate you are dealing with is asset rich but cash poor, the probate registries have said that executors will be able to apply to the Probate Service to access a particular asset for the sole purpose of paying the fee. Instalment options will not be available.

Where can you get more information?
The government has not published any public information on this issue beyond the consultation documents:

In the absence of public-facing information from the government, we will continue to publish updates on this, as and when they are announced, here on the STEP Blog.

If you have any specific questions about your probate application please contact your local probate registry.

George Hodgson is Chief Executive of STEP

Probate application fees: our concerns

Emily DeaneAs 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.

Emily Deane TEP, STEP Technical Counsel