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Enhanced Probate Fees

In February 2017 the Ministry of Justice published the results of a consultation on its proposals to increase fees charged for probate applications to the Probate Registry. In the same document the Ministry notified the public and the professions that it was pressing ahead as planned with all speed and would change from a flat-fee structure to a scaled-fee structure from May 2017 onwards. The current flat fee of £165 for estates above £5,000 in value will be superseded by what the Ministry call “enhanced” fees as follows:

It seems likely that the new scale will apply to probate applications made on or after commencement (a date not yet confirmed) regardless of when the death occurred – that is, not just to deaths after that date. This may well result in a bottleneck of probate applications to try to beat the fee deadline; Many executors do not rush to obtain a grant especially when there is no inheritance tax to be paid, but a looming and large fee increase may press them into belated action.

For taxable or the larger non-taxable estates, a full inheritance tax account has to be filed at HMRC and acknowledged before the probate application can be made, so a backlog at HMRC Inheritance Tax section is also likely. At the time of writing we have no more detail on the date of implementation (which will be by statutory instrument and thus reasonably swift). However, the Probate Registry has announced this week that, exceptionally, one can now lodge a probate application in advance of the inheritance tax forms being lodged, to “beat” the fee increase, so long as it is made clear on the application that the inheritance tax form receipt IHT 421 is in hand and will follow. The grant will not issue until the IHT 421 stamped by HMRC is also filed at the Registry and the actual probate application must be otherwise complete, but at least this gives flexibility. One might still imagine there will be a degree of panic/chaos at various stages of the process, however. There is no proposal to allow instalment payments of the new fees.

It is not the main purpose of this article to discuss the Ministry’s decision or the various responses to it from professions and press, since the change is certainly going to happen and in a matter of weeks, but it certainly met with widespread dismay and disapproval. Probate fees used to be on a scale some years ago, before the current flat-fee arrangement, but at a much more modest level. The new scale represents a 120-fold increase in fees at the top end of the scale (an estate worth over £2m) and even at the lower end of the scale (an estate worth over between £300,000 and £500,000) the new fee is more than a 6-fold increase.

There is also concern about how the probate fee is to be paid – many executors or beneficiaries can find £165 but £20,000? The Ministry’s view that the fee could be funded out of cash in the estate or out of the deceased’s accounts (at the discretion of the bank/building society) is optimistic at a time of low interest rates when few sit on large cash deposits in the bank or under the bed if they can help it. The Ministry’s confidence that beneficiaries, executors or even solicitors acting for executors will fund the fee in the hope of being reimbursed later may be misplaced; executors and their advisers are not traditionally expected to fund the administration of the estate personally, and beneficiaries may have little or no cash to do so. The Ministry’s view was this might encourage clients to name solicitors as executors in wills so that they could fund the fee, but it might be more likely to encourage solicitors and lay executors to renounce or refuse to be named as executors, so as not to fund it.

So far, so startling, but what can one do about it? In many estates, inheritance tax is mitigated by careful planning and use of exemptions, allowances and reliefs in life, or by deeds of variation executed after death, but such steps are unlikely to reduce the probate fee.

So what can one do in one’s lifetime, short of leaving £20,000 cash in a box under the bed for the probate fee? It is worth considering what items are treated as being in the estate for probate (and probate-fee computation) purposes and what are not (though they may still fall into the inheritance tax computation on death). These include:

It is also likely that the fee scale will apply to net values, that is, after liabilities such as mortgages or personal debts owed are deducted. If so, borrowing money and then giving it away in one’s lifetime may be reduce the estate, even if it is not good for one’s credit rating or bank balance.

It will become tempting to many clients with large estates, particularly those who are elderly or seriously or terminally ill, to engage in what one might call “probate-fee planning” in their lifetime, by considering whether they should have more assets held in one of these ways and fewer assets directly owned by them in their sole name. Professional advice is essential before making such changes, however, as there may be adverse tax and practical/financial implications to bear in mind and depending on the type and value of estate assets, change may not be necessary or may not be worth the candle. It is certainly true, however, that the time to think about the issue is in one’s lifetime and when one is well enough to make potentially complex financial decisions, as “post-death” probate-fee planning is simply not an option.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.

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