The government’s recent announcement to increase probate fees has drawn significant criticism from many parties. Andrew Milburn, Head of our Probate and Estate Administration department discusses why.
What are Probate Fees?
Probate Fees are fees payable to the Probate Registry when an application is made for a ‘Grant of Representation’ following somebody’s death. For ease of reference, I will refer to a Grant of Representation as ‘a grant’. Not all estates require a grant. However, if there is a property or significant savings, a grant is likely to be required.
What are the current fees?
If the estate is worth more than £5,000 there is a flat Probate Fee of £215 for a personal application or £155 for a solicitor’s application. Estates worth less than £5,000 are exempt.
What are the proposed changes?
Changes were initially proposed in February 2017. It’s safe to say that they didn’t go down very well. They were subsequently dropped when the general election was announced in May 2017.
The government have now put the proposed increases back on the table. They are likely to go ahead in April 2019.
Rather than having a flat fee, the new fees will be based on the size of the estate as follows:
Value of Estate Probate Fee
Up to £50,000 No Fee
£50,000 – £300,000 £250
£300,000 – £500,000 £750
£500,000 – £1,000,000 £2,500
£1,000,000 – £1,600,000 £4,000
£1,600,000 – £2,000,000 £5,000
Over £2,000,000 £6,000
The proposed fees for the larger estates (£500,000 upwards) are lower than those proposed in 2017 whereas the fees from £50,000 up to £500,000 (which covers the majority of estates) have increased.
It’s worthwhile highlighting that people with estates between £5,000 and £50,000 will no longer have to pay any fee. However, many estates of that size don’t need a grant in the first place ao it’s not clear how many people will benefit from this.
Why are the fees being called a stealth tax and why does it matter?
Whether the fees amount to a tax or not affects the way that the changes have to be introduced. New taxes must be approved by a parliamentary vote. When the increases were first announced in 2017 a cross-party parliamentary committee warned that the new fees might be unlawful for this reason. However, the government are pushing ahead on the basis that the increases do not constitute a tax so no vote is required.
It can be argued that a fee is a payment taken to cover the cost of the actual service being provided; in this case, the costs associated with dealing with probate applications.
The government have announced that the fees collected will be used only to fund the Court Service, the larger organisation to which the Probate Registry belongs. However, the Probate Registries are only a very small part of the Court Service. If the fees are being used to fund a much larger government body, should they be classed as a tax?
Another criticism relates to the fact that the fees will increase by the size of the estate. The Probate Registries don’t have to carry out any additional work when dealing with larger estates. In fact, the Probate Registries actually have less work to do for larger estates. With smaller estates, the Probate Registries are responsible for checking the inheritance tax return, a task that is carried out by HM Revenue & Customs for larger estates.
What about the timing of the announcement?
The timing of this announcement is also leaving a bad taste in many people’s mouths. The increases were announced on the evening of the 5th November 2018 but the announcement certainly wasn’t accompanied by any fireworks. The announcement was made just one week after the budget which contained no mention of the fees hike.
How will this work in practice?
In short, we don’t know yet. If you are responsible for dealing with an estate, you are sometimes left with a catch 22 situation because you can’t access funds until you have the grant but there may be expenses that you must pay beforehand. It is likely that the Probate Registries will continue to require the fee to be paid before they will issue the grant which could cause problems for some.
Currently, most banks/financial institutions are willing to release funds to settle inheritance tax before the grant is issued. So will they be prepared to do something similar with the new Probate Fees? We will have to wait and see.
So are the increases a ‘Stealth Tax’?
It certainly looks that way. It’s difficult to argue that the fees correspond in any way to the actual costs of the service provided. They are a way of collecting in revenue to fund the functioning of a government body which certainly sounds like a tax to me.
The government’s decision to shelve the proposals before a general election and then reintroduce them just a week after the budget suggests they were keen to avoid scrutiny from both parliament and the public.
Whether it’s right to charge more for larger estates is another question, one that I don’t intend to get into here. This is the debate that has surrounded the rights and wrongs of inheritance tax for many years. The point is, taxes require parliamentary agreement for a reason. Trying to get around this requirement by calling a tax a fee somehow doesn’t sit right with me.
In my view, if the government want to collect more money from estates they should propose changes to the inheritance tax regime and follow the necessary procedures rather than trying to sneak them through the back door.