From April 2019, relatives inheriting estates worth more than £300,000 face a new probate stealth tax not mentioned in the Autumn 2018 Budget, as the Government looks at sneaky ways of raising more money from estates of the deceased.
The Government has ignored objections to its earlier attempt to increase probate fees (by an even greater amount last time), meaning families across the UK face having to pay extra probate charges of up to £6,000 instead of the current fixed fee of just £215.
Although the Government describes the fee as “not a tax”, and thus it does not need to be put it to a vote in Parliament, it is nevertheless effectively a back-door inheritance tax charge as the cost is banded against the value of the estate, and the increase is designed to provide more funding for the court’s service.
According to the Government’s own figures, the current flat fee already more than covers the administrative costs for the courts in processing grants of probate, giving executors the right to distribute the proceeds of a will. The current fee is a flat charge and not based on the value of an estate.
The new system imposes a slab-based tax starting at £250 for estates worth between £50,000 and £300,000, with an estate worth £300,001 paying £750, which is £500 more for the extra £1 of value. An estate valued at £2m will pay £5,000, but an estate worth £2,000,001 will pay £6,000 – an extra £1,000 tax for just £1 more in value.
As house prices have increased over recent years, thousands more estates look likely to be caught by the new charges.
Bishop Fleming Tax Partner, Christine Tuckerman, explained: “Not only are the proposed increases morally wrong as they are a stealth tax on grieving relatives, the fact that the Government wants to impose this slab-based system of tax, that has previously been recognised as unfair, makes an already difficult situation for the bereaved even worse.”.
In addition, couples face a double whammy in that the new fees will have to be paid both on the first and second death – so up to £12,000 in total for a couple.
Defending the proposed increase, the Government has previously claimed that estates will benefit from an increased nil-rate inheritance tax band for homes inherited by descendants. However, many estates will not benefit from this as they won’t have the right kind of asset or the right kind of descendant.
Christine added: “This is a disguised inheritance tax charge and the Government is being sneaky in introducing this with little publicity. Not only that, but it expects these fees to be paid upfront, which may not always be possible where there are no funds, or it is difficult to access them. Having to borrow the money is an added burden to bereaved families.”
Although the Government has estimated that the charges will lift 25,000 estates out of needing to pay probate fees, Bishop Fleming believes that the majority will pay more, especially where they own real estate.
The new probate fees will have to be paid up front, so relatives will have in some cases to borrow the money to pay them so that they can then access the deceased's estate.
Bishop Fleming delivers probate services and private wealth advice to individuals. Please contact our Probate team if you would like to discuss the issues raised in this article.
Draft statutory instrument now approved by Parliament
|Value of estate (before IHT)||Proposed fee|
|Up to £50,000||£0|
|£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|