‘Stealth tax’ on estates announced by the Government

Although a somewhat watered down version of the 2016 consultation, and specifically described as ‘not a tax’ by the Government, as it is banded against the value of the estate it certainly appears to be a kind of tax.

The full proposed fee scale is detailed in the table below:

Currently, probate fees are charged at a flat rate of £215 for individual (made by members of the public) applications, and £155 if applying through a solicitor, with no fee being charged for estates under £5,000.

Although the Government estimates the charges will lift 25,000 estates out of needing to pay probate fees, our experience of estates suggests that the majority will have to pay higher probate fees, especially where a property is involved.

We look at the proposal in more depth:

“Empowering individuals”?

Peculiarly the Justice Minister, Lucy Frazer, has stated that the reforms will “empower individuals to make applications themselves instead of needing to instruct and pay for solicitors”, presumably through investment in the court system. However, we fail to see how this will help with the legal processes and understanding needed to apply for a Grant of Probate. The court is unlikely to provide the legal assistance needed to deal with the many other aspects of administering a loved one’s estate, so many will still need to turn to a solicitor for advice anyway.

Funding the increase in fees

There may also be significant problems posed in funding the probate fee. For example, if the estate is property rich but cash poor, as the fee will be payable before the Grant of Probate can be obtained (allowing the executors to access the deceased’s funds). If the executors are unable to fund it themselves (and seek reimbursement later from the estate) there will be little option but to approach third party funders to help with this fee. The Ministry of Justice has addressed this point saying that ‘guidance on ways to pay will be issued’ but having experienced major difficulties in trying to obtain Inheritance Tax loans, and unless a new system is introduced in tandem with the increase in probate fees, we cannot see how this would be easily resolved. A whole new industry could spring up in order to fund probate fees which perhaps could be of benefit to financial institutions and debt providers, but will doubtless be an added complexity and point of stress in the process of applying for probate.

Introducing risk into the probate process

If families are looking for a loan to cover the cost of probate fees at this stressful and emotional time, people could become prey to unscrupulous high interest loan companies taking advantage of the situation.

These reforms are also likely to see an increase in people trying to avoid the fees altogether by transferring assets (either direct to individuals or into trusts) during their lives, without fully understanding the implications of doing so (tax, lack of control etc). We would strongly recommend taking legal advice before considering such actions.

Unfair, discriminatory and hypocritical

The Law Society says, “It is unfair and discriminatory to expect the bereaved to subsidise other parts of the courts and tribunal services.” The House of Lords’ Secondary Legislation Scrutiny Committee is similarly unimpressed, reporting this November that, “To charge a fee so far above the actual cost of the service arguably amounts to a “stealth tax” and, therefore, a misuse of the fee-levying power.” They also highlight standard guidance given to Government departments which advises that that “different groups of customers should not be charged different amounts for a service costing the same” and questioned why this new ‘stealth tax’ should be propping up the rest of the courts service.

Charging fees as a percentage of an estate or value of an asset have been outlawed across the rest of the legal profession for good reason. Ian Bond, Chairman of the Law Society’s Wills and Equity Committee says, to now introduce a fee charged in this way “seems hypocritical.”

If the reforms are successful, Jane Berney of the Institute of Chartered Accountants in England and Wales said, “Probate offices will need to gear themselves up for an influx of applications… as executors rush through the process to try and beat the price hike.”

The Ministry of Justice will see an extra £185m received from these charges by 2022-23 which would be very helpful for the Courts & Tribunals services. However the reforms are still to go through Parliament and many legal groups are lobbying against these changes. So we shall have to wait and see whether this along with potential reforms to Inheritance Tax rules will make ‘death taxes’ a big topic for Spring 2019.