Changes to Probate – More Government Stealth Tax

I have been asked by a number of customers recently about the proposed changes coming to the cost of probate, so I wanted to give you an update and highlight a potential tax pitfall.

What are the changes?

Currently there is a flat fee of £215 on all estates worth over £50,000.

 
What the Government is proposing to do, is link the fee to the size of estate, rather than charging a fixed fee to the actual work being carried out. This will work on a sliding scale, with the highest fee being £20,000 … an increase of 9,202%!
 
The decision comes despite only 13 of the 831 respondents in a consultation issued by the Ministry of Justice actually agreeing with the plans - a mere 1.6 per cent. Most of those who replied to the consultation were legal experts and firms of solicitors.

The move will mean estates under £50,000 are exempt from charges. However, rampant house price inflation since 1997, which has seen the average property value reach £206,000, according to Nationwide's index, will push increasing numbers of estates above that level.

Lawyers have warned higher fees could put older people at risk of unnecessary financial pressures when trying to access money left to them by their spouse, and it has been estimated that the Government could raise more than £250million a year from rises in probate fees. 

The Joint Committee on Statutory Instruments says the plan is akin to bringing in new taxes without parliamentary approval. The joint committee said the new charges "appear... to have the hallmarks of taxes rather than fees", flagging up the scale of the proposed increases and saying they were "disproportionate to the service provided by the Probate Registry".

 
These fees are in addition to any inheritance tax that would also be due.

Can I minimise any potential impact to my family?

For most estates, although there are obviously many exceptions to this, the largest contributor to the size of the estate on someone’s death is any property owned. Given that the average property value in the UK is £206,000 (depending on which figures you take), this would take most estates outside the £50,000 exemption value, and therefore incur at least the minimum fee of £300.

For a married couple who own their own home in joint names, a way to avoid this increased fee, is to ensure that the share of the property of the one who dies first, does not form part of the estate at all. If the property is held in joint names without any restrictions, the share of the person who dies automatically passes to the spouse, and will not form part of the estate.

However, this would not be the case for married couples where the property is held in a single name and the property would become part of the estate and therefore subject to probate.

If there is beneficial ownership of the property, where for example the person that died owned 75% of the property and the one that did not, owned 25%, then again, the 75% share would pass to the estate.
 
The simplest way to avoid this is to either have the property is joint names, or to create a trust deed to document any changes.

As everyone’s circumstances are different, if you are unsure as to how your property is held, please contact a specialist probate solicitor for further advice.