Probate fees – a tax by any other name

 

The Ministry of Justice announced the consultation on probate fees last week.

 

https://consult.justice.gov.uk/digital-communications/fee-proposals-for-grants-of-probate/supporting_documents/probateconsultation.pdf

 

 

It is thought that new fee increases could be made effective from as soon as April 1 2016 – and there are many practitioners across the country who believe that this set of fee increases on probate fees is unjust, disproportionate and unfair.

 

Not only might these fees be unfair and disproportionate (the actual task of getting the grant of probate is already covered by the cost of the existing court fee) but the potential to charge quite high values of fees is seen by some as being similar to a tax.  Except the power to increase a tax is something that is given far higher scrutiny, both in the budget and in reactions to the budget – there is opportunity for more careful examination of the impact that increases in the tax burden will have on the behaviour of the populace – indeed, sometimes the reason for increasing taxes is so that the behaviour of the public is modified – towards the purchase of cars that consume less fuel, towards the purchase of particular types of alcohol – it is the primary example of applying a “nudge” philosophy – or behaviourist psychology techniques – encourage certain types of behaviour by reward, discourage certain behaviour by withholding reward (or rather, by making the retained money in your wallet significantly less).

 

Value of estate (before inheritance tax)             Existing fee       Proposed fee

Below £50,000 or exempt                                            £215                £0

Exceeds £50,000 but does not exceed £300,000    £215                £300

Exceeds £300,000 but does not exceed £500,000   £215                £1,000

Exceeds £500,000 but does not exceed £1m               £215                £4,000

Exceeds £1m but does not exceed 1.6m                       £215                £8,000

Exceeds £1.6m but does not exceed £2m                     £215                £12,000

Above £2m                                                                          £215                £20,000

 

Why would these increases be unfair?  Everything has to be paid for?

 

The probate court fees are already appropriate – the costs that are already being charged cover the cost of obtaining a one off service – this is a finite transaction – there are no ongoing case management issues – once the grant has issued, the court has no need for further supervision and intervention.  As a fee for a service, the fee is suitable.  To increase the fee so that it substantially exceeds the cost is unjust and unfair.

 

Obtaining a grant of probate is the rite of passage in most estates where there are assets that exceed £25,000 or thereabouts, since banks and building societies are frequently willing to release that sort of money without the need for any formalities.  In addition, there are many people who own assets jointly with a spouse or partner – and in those cases where assets are owned jointly, there is no need for a grant of probate in order for the asset to belong to the survivor.

 

So that’s alright then – all we have to do is to put assets in joint names and we’re golden?

 

Well, yes and no – just because assets are in joint names doesn’t mean that this is the best thing for an individual.  Putting assets in joint names whilst you are alive means that the other person can spend your money as if it was their own – potentially wiping out your savings and leaving you in a difficult situation.  If you were a vulnerable elderly person, you might be taken advantage of.

 

Putting assets in joint names can also have the effect that you are treated for some purposes as if you had made a gift of what you own – if the relationship you have with the other joint owner should become difficult, or they should themselves be in financial difficulties, your own money might be lost.

 

Just because someone receives money by survivorship after death does not mean that Inheritance Tax should not be paid on the estate.  Although the application for the grant of probate normally triggers the requirement to pay Inheritance Tax, the obligation to account for Inheritance Tax still applies, whether or not a grant of probate is required.  This is something that the public might easily not be aware of.  Failure to account to the Inland Revenue for tax that is due causes penalties in itself.  Failure to pay the tax that is due can cause penalties, and is likely to result in charges for underpaid tax and the interest on that tax.  Potentially, this means that problems can be stored up for the future, all because there was a desire not to pay this probate fee.    Trying to untangle what taxes should have been paid, the penalties and interest will be very stressful for families later on.

 

What do I do if I’m single? 

 

Good point  – you are going to need a grant of probate.  No matter who you leave your money to – even if you leave all that you have to charity, this bill will still have to be paid.  There is no Inheritance Tax to pay when you leave all your assets to charity, but still the probate fee will apply.

 

I thought it was free to leave everything to my wife?  Now you say she will have to pay?

 

Your executors will have to pay the probate fee, even if all that you have passes outright to your wife.  If you have made arrangements to give your wife everything for life, and then to go to your children (perhaps because you have been married before) then even though there is no Inheritance Tax to pay, there will be a probate fee.

 

How will my executors pay those massive fees?

 

Yes, that’s a problem.  When it is Inheritance Tax, you can pay a portion of your tax bill in instalments if your money is tied up in your house.   Usually your bank will only allow payments to be made for Inheritance Tax and for your funeral bill.  Perhaps the banks will start to allow payments to be made for probate fees.  It might take them a little while to get structures in place though.  Until then, it will be for your executors to produce the money out of their own pocket.  If they don’t have the money, they will have to borrow it.

 

This really sounds like a bad idea – who thought it up?

 

Yes it does.  And I can’t actually point to the Chancellor of the Exchequer and blame him for making the rules.  Still – it is “open for consultation” so feel free to comment directly.

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