A stealth tax on the bereaved: Government's planned probate fee hikes of up to 9,200% slammed - with estates hit for up to £20k
- Probate fees are currently a flat £215 for all estates worth £5,000-plus
- New bands will see a rise of 40% to £300 for those inheriting £50k-£300k
- Rises escalate to £20,000 for estates worth $2m-plus - a 9,200% hike
- Osborne will lift most homeowners out of inheritance tax by 2020
- But property prices will still push estates into higher probate fee bands
- Top estate planning expert dubs probate fee proposals a 'stealth tax'
- Work of the Probate Registry is 'virtually the same' whatever the value of an estate, says solicitor
Proposed hikes of up to 9,200 per cent in probate fees levied on the bereaved are a 'stealth tax', according to a top estate planning expert.
Probate fees are currently a flat £215 for all estates worth £5,000-plus. But hefty increases are in the pipeline, setting the bottom rate at £300 for those inheriting £50,000-£300,000, and escalating to £20,000 for estates worth £2million-plus.
Rampant property price inflation will push people into the higher bands for probate fees, just as it propels many people's estates over the threshold at which assets become liable for death duties.
Stealth tax? The Government could raise more than £250million a year from rises in probate fees
Chancellor George Osborne is trying to address the latter issue by lifting the vast majority of homeowners out of inheritance tax by 2020.
However, the Department of Justice is now considering jacking up probate fees beyond the point where they reflect any extra administration work involved in dealing with larger estates, legal and financial experts believe.
An estimated 30,000 people inheriting between £5,000 and £50,000 would become exempt from probate fees under the plans, but the Government could raise more than £250million a year if they go ahead.See the new bands and the planned increases in probate fees below.
Justice Minister Shailesh Vara says this money will be a 'critical contribution to cutting the deficit and reducing the burden on the taxpayer of running the courts and tribunals'.
Vara says the maximum fee would 'only be paid by the very wealthiest estates' and that fees would never exceed 1 per cent of the value of an estate and 'in many cases it would be considerably less'.
But Ian Dyall, head of estate planning at wealth and investment firm Towry, says: 'I appreciate the government’s desire to balance the books and the need for increased tax revenue but this new probate fee is an example of a stealth tax.
'The size of the probate fee bears no relation to the work involved in processing the case – it is simply another method of generating extra revenue. Their own figures show that they expect to generate an additional £256million from this change.
'Many people who are looking forward to paying less inheritance tax due to the introduction of the residence nil rate band will lose a significant part of that saving in probate fees. A £20,000 charge on a £2million estate is the same as adding 1 per cent to the inheritance tax rate.
'The new probate fee will also create problems where estates predominantly consist of illiquid assets, such as property or farms, as there may not be enough cash available to pay the bill, leading to expensive bridging loans, additional administration costs and delay.'
Tim Fullerlove, trusts and tax specialist at Wilsons Solicitors, says that on one hand the Government is making changes that take people out of inheritance tax, and on the other raising a tax which it is not calling a tax.
Ian Dyall: 'This new probate fee is an example of a stealth tax'
'It's giving with one hand and taking with the other,' he says.
Fullerlove adds, regarding probate fees: 'There is always difficulty when they effectively raise a tax but don't make it clear it's a tax.'
Joyce Bradbeer, partner of probate at Moore Blatch Solicitors, says: 'Although moving the proposed fee structure from a flat to a banded fee is, in certain cases, deemed fairer and more progressive than the current structure, it also means that those with larger estates will be paying significantly more, even though the work that the Probate Registry has to do is virtually the same whatever the value of the estate.
'But, more to the point, how are the executors going to raise the money to pay for this? Access to cash is extremely limited prior to the issue of the Grant of Representation.'
The latter is a document issued by a court that allows a dead person's executors to start closing their accounts and liquidating their assets.
However, Vara said when announcing a consultation on probate fee rises: 'We also want to see a simpler, more streamlined process for probate applications, moving from a paperbased to an online system.
'This will make the probate service much easier to navigate so the experience of the bereaved is as simple and hassle-free as possible, reducing worry for executors at what is often a very difficult and distressing time, and enabling most applications to be completed online and, we hope, without expensive professional advice.'
A Ministry of Justice spokesman said the consultation was now closed and it was considering the responses.
A recent study revealed that one in four homes sold in 2015 went for more than £325,000, the threshold at which people's assets become liable for inheritance tax.
That's double the 13 per cent of property sales in England and Wales breaching the inheritance tax limit just six years ago, according to the research by Saga Investment Services.
Its report highlighted the increasing number of people who now have to worry about death taxes because they live in a property hotspot - although they have benefited from soaring prices that are now shutting others out of the housing market.
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