You may have heard the ‘probate stealth tax’ mentioned in the news in recent months and wondered what it is. Anything with the word ‘stealth’ in the title usually starts the alarm bells ringing and suggests it’s something we need to be alert to. So what exactly is it – and is it as sinister as it sounds?
Shortly after the Autumn budget last year, the government announced proposals to charge higher probate fees and introduce a new sliding scale fee system, which could be approved and implemented as soon as April this year. In the new proposals, the threshold at which families will need to pay any probate fees will be lifted from the existing £5,000 level to £50,000. This is obviously good news for smaller estates, and the Ministry of Justice have estimated that this means an extra 25,000 estates per year will pay no probate fees at all.
However, for estates above the new £50,000 threshold, there will be an increase, which will rise on a sliding scale according to the total estate value. Estates worth between £50,000 and £300,000 will attract a fee of £250, rising to £750 for those valued between £300,000 and £500,000. This will continue to increase to a maximum of £6,000 for estates of £2m and above. The full breakdown of the new proposed fees can be found below.
| Value of Estate | Old Fee | New Fee | % Change |
|---|---|---|---|
| Up to £5,000 | £0 | £0 | 0% |
| £5,000 – £50,000 | £215 | £0 | -100% |
| £50,001 – £300,000 | £215 | £250 | +16% |
| £300,001 – £500,000 | £215 | £750 | +249% |
| £500,001 – £1m | £215 | £2,500 | +1,063% |
| £1m – £1.6m | £215 | £4,000 | +1,760% |
| £1.6m – £2m | £215 | £5,000 | +2,226% |
| Over £2m | £215 | £6,000 | +2,691% |
A fee, or not a fee?
Unsurprisingly, this has attracted a fair amount of opposition from the legal profession. The Law Society, amongst other industry voices, is urging MPs to oppose or amend the proposals when they pass through the House of Commons.
One of the key objections is the way the Ministry of Justice have gone about the introduction of the new system, and this is where the ‘stealth’ bit comes in. The Government has controversially classified the increase as a ‘fee’ and not a tax, which means the plans will receive less parliamentary attention. Ordinarily, a new tax rise would need a parliamentary bill and to be debated and voted on in both Houses. A new, tiered payment structure which penalises larger estates is much more similar to a tax mechanism, but calling it a ‘fee’ avoids a closer degree of scrutiny.
The fact that the cost to the courts of granting a probate doesn’t change whether the estate is worth £5,000 or £2m would seem to back up the stealth tax claims. It would also mean that families are effectively being taxed twice on their estates: once for Inheritance Tax at 40% above the nil-rate band, and again via the probate fee sliding scale.
The new system is expected to raise an extra £185m per year by 2022/23, which would go towards funding court services. Legal commentators are questioning why the burden of raising this funding should be placed on bereaved families, singling them out to shoulder the costs of the court service.
When you apply for probate is key
The government have indicated ‘early April’, but it is still not absolutely clear when the new probate fees will be introduced. The legislation will need to pass through Parliament, which is obviously a little pre-occupied at the moment, so this date could change.
Update 28/03/2019: the Ministry of Justice has confirmed that the new fee structure will NOT come into force from 1 April as planned, and will be delayed by at least three weeks. This is due to the vote having been delayed by Brexit.
However, a final point to be aware of is that if the new probate fees are given the green light in their current form, they will apply to the date when families or individuals apply for the probate, rather than the date of the death. So, if a loved one were to die tomorrow but you and your family delayed applying for probate until after the new measures had been introduced, then your fees would be calculated according to the new system, regardless of the fact that the death had occurred before they were introduced.
Again, pressure is being applied on the Government from within the industry to change this part of the proposals so that the new fees only apply to the estates of people who die after the new system has been introduced. However, there’s no guarantee this will happen, so many bereaved families are currently working out whether they would be better or worse off with the new fees. If worse, they will be looking to apply for probate before the new fees come in, which could lead to a rush of families seeking to administer their wills and settle their affairs before then, or risk having to pay the higher amount.
If you would like some advice or guidance in applying for probate, please get in touch, we’d be happy to help.
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