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Dealing with a loved one’s estate when they die – are they being taxed twice?

Katherine Carroll reports on the unpopular probate fees hike

Probate Scrabble Letter Spell Out

When a loved one dies, dealing with the administrative side of things can be daunting enough but from Spring this year, it is set to get more complicated…… The Government is planning to introduce much higher probate court fees – dubbed a stealth tax – in addition to any Inheritance Tax payable on an estate.

Probate is the administrative process of unfreezing someone’s assets after they have died. A Grant of Probate is a court order which confirms the validity of the will and is granted to the executors of the will – allowing them to step into deceased’s shoes and deal with their assets – close bank accounts, deal with investments, sell any property etc. Where there isn’t a will, a Grant of Letters of Administration is the court order to confirm the correct beneficiaries entitled to the estate and granted to those beneficiaries as administrators to deal with the estate.

Inheritance Tax is generally payable on someone’s estate at the rate of 40% if it exceeds the nil rate band (£325,000) although in some cases a residence nil rate band can be claimed (£150,000 from April 2019). Where both husband and wife have died, usually those bands can be doubled.

Historically the Probate Registry charge an administrative fee to process the application and this is around £155 if a solicitor applies or £215 for a personal application. New proposals will increase this fee dramatically to a maximum of £6,000 – a whopping 3,770% increase!

Whilst we may not like it, we expect to pay Inheritance Tax on an estate when someone dies, but the new laws will effectively mean a second tax is payable – but without the usual exemptions that apply to Inheritance Tax such as spouse or charity exemptions. The new proposed fee table is set out below.

Estate value Probate fee
Up to £50,000 nil
£50,000 – £300,000 £250
£300,000 – £500,000 £750
£500,000 – £1m £2,500
£1m – £1.6m £4,000
£1.6m – £2m £5,000
£2m above £6,000

 

Whilst it has been defended as being a ‘fair and progressive way to pay for probate services’, the above increases do sound like a revenue generator rather than a ‘fair’ cost to process an administrative application. As the burden upon the Probate Registry is the same regardless of the value of the estate, this definitely appears more like a tax than an administrative fee.  As an example, a £600,000 estate would pay £2,500 rather than £155, which is more than 16 times the current fee!

Once again, it seems that this proposal will hit those home owners in the South East hardest where property prices are higher. Further, whilst a £6,000 fee might feel like a drop in the ocean for an estate worth £2m, if that estate consists of a house only, it will leave executors struggling to find the cash to pay the fee upfront when assets are tied up.

The Labour party has indicated that they will force a House of Commons vote on the proposals but whether this is successful remains to be seen. If the reforms go through, what can be done? You can consider lifetime planning to reduce the value of your estate subject to probate:-

  • Utilise joint assets (where a Grant of Probate isn’t needed to transfer them) – so joint bank accounts and investments and owning your house as ‘joint tenants’;
  • Gift assets to loved ones in your lifetime rather than through your estate on death;
  • Put insurance in place to cover the probate fee – this would provide much needed cash flow especially in the case above where the largest or only asset is a property;
  • Lastly, spending your wealth in your lifetime. If you leave only £50,000 in your estate the probate fee will be nil.  Enjoy all that hard-earned money!

However, whilst the above options are solutions, it can mean that you are left financially vulnerable in your lifetime. Further, currently, these reforms are developing and changes may well occur in the coming weeks, so to be sure where you stand and to review your estate, please get in contact.

This article was written by Katherine Carroll

Please note the contents contained in this article are for general guidance only. Legal advice should be sought before taking action in relation to specific matters.

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