Update: government announce drastic increase in probate fees

The personal representatives, who are responsible for administering the estate of someone who has died, generally require a Grant of Representation to allow them to collect in, sell and distribute the deceased’s assets, with the exception of jointly held assets which pass automatically on death to the surviving owner. Currently a flat fee of £215 (£155 for a solicitor’s application) is charged by the Probate Registry when applying for a Grant.

However, last month the Ministry of Justice confirmed that, subject to parliamentary approval, there will be a dramatic increase in probate fees from May 2017. The charging structure proposed is a sliding scale of fees based on the value of the estate passing under the Grant, as shown in the table below.

Value of estate (before inheritance tax) New fee
Up to £50,000 or exempt from requiring a grant of probate £0
Exceeds £50,000 but does not exceed £300,000 £300
Exceeds £300,000 but does not exceed £500,000 £1,000
Exceeds £500,000 but does not exceed £1,000,000 £4,000
Exceeds £1,000,000 but does not exceed £1,600,000 £8,000
Exceeds £1,600,000 but does not exceed £2,000,000 £12,000
Above £2,000,000 £20,000

Prior to obtaining the Grant, the personal representatives must produce a receipt from HMRC to prove either that they have paid the necessary inheritance tax or that no inheritance tax is payable on the estate. Upon notification of death, most banks and other organisations freeze the deceased’s holdings until production of the Grant. However, banks will generally allow a direct payment from the deceased’s account to HMRC in order to meet the inheritance tax liability; clearly this is only possible if the deceased’s bank account has sufficient funds.

The sharp rises in property values, especially in London and the South East, mean that increasingly more estates are creeping above the inheritance tax threshold. Under the government’s proposal, the personal representatives of such estates will not only have to raise funds for inheritance tax but also in some cases a further £20,000 probate fee, all whilst there is only very limited access to the deceased’s assets.

The probate charges only increased to their current level in April 2014, however the government published their proposal to increase probate fees again in February 2016. The Ministry of Justice invited responses to the plans in a consultation. The proposals received overwhelming opposition, with only 63 out of 829 respondents to the consultation agreeing that the fees should be linked to the value of the estate and less than 2% of respondents in favour of the level of the proposed fees. The prevailing response was that the proposed fees are too high and the differences between the bands too steep. To illustrate this point it has been calculated that the changes will mean that some estates will end up paying more than 129 times the present fee.

The respondents to the consultation cited various reasons for their opposition; one such reason was that the size of the court fees proposed is wholly disproportionate to the cost of providing the service. Furthermore, respondents argued that the sliding scale was also unjustified as the cost to the Probate Registry of preparing Grants is broadly the same regardless of the value of the estate.

The government has acknowledged that the Probate Registry is already self-funding on the existing fees. The Ministry of Justice has estimated that the new fees will raise an additional £250 million a year which will be put towards the general running of the courts and tribunals.

Since the Ministry of Justice confirmed that, despite the feedback from the consultation, the new fees will be introduced there has been further criticism. Many believe that the new fees constitute an additional form of taxation on the bereaved and that the government are taking advantage of the fact that most people will be completely unaware of this change, leading the Conservative MP Jacob Rees-Mogg and others to describe it as a “stealth tax”.

A key issue is that people may have real difficulty arranging payment of these fees. The changes will have a significant impact on beneficiaries who are asset-rich but cash-poor. Such beneficiaries may find themselves needing to secure a bank loan in order to pay the fee, which will not only incur interest and therefore increase estate costs, but it may also raise issues if the assets which are inherited are not then being sold. In addition, the availability of a loan will clearly depend on the credit rating of the personal representatives or beneficiaries in question.

Concern has also been raised regarding the methods that might be adopted by people in order to minimise the probate fees, such as transferring assets into children’s names or placing them into trusts. There is a worry that older people, especially, may be pressured into giving away assets to avoid the charges, which may in turn leave them vulnerable.

The Ministry of Justice have said that the exemption for estates under £50,000 (previously estates not exceeding £5,000 did not incur a fee) will mean that more than half of estates will pay nothing. However, whilst the increased exemption is significant, the benefit is somewhat illusory; frequently for estates of less that £50,000, personal representatives do not need to apply for probate as the thresholds for requiring a Grant are not met (i.e. banks generally have a maximum amount which they will release without production of a Grant).

The changes are still subject to parliamentary approval, and as such we do not have an exact date for when in May the new fee structure will take effect. However, the fee increase will certainly lead to a surge in applications to the Probate Registry in the coming weeks as people try to obtain Grants of Representation ahead of its introduction.

This article was written by Ian Bradshaw, Partner, Private Client, with assistance from Freya Marks, Solicitor, Private Client.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.