Probate fees: Round two of the ‘stealth tax’

Many will remember the plethora of headlines in March and April 2017 regarding the proposed increase in probate fees. A Grant of Representation, commonly known as a Grant of Probate, is the document required by a deceased’s personal representatives to access their assets and distribute them to beneficiaries.

The proposal was to increase the application fee for a Grant of Probate by as much as 12,904%. The current fee is £155 for a solicitor’s application. Estates in excess of £1million and up to £1.6million were to be charged a fee of £12,000 and those in excess of £2million was £20,000.

The proximity to a General Election and the ‘stealth tax’ headlines resulted in the Government scrapping the fee increase. The Ministry of Justice (MoJ) said that it was committed to reviewing the fees and would continue to consult with interested parties.

With the surprise election result and Brexit heat, the fee increase was put on the back burner. That was until yesterday. Lucy Frazer, Parliamentary Under Secretary of State for Justice, announced in the House of Commons that new legislation was to be put before Parliament reforming probate fees from April 2019 with the increased income being spent on the costs of running the courts and tribunal service.

Much the same as in 2017, the cost of the fee directly relates to the value of the deceased’s estate. The feeling that it is a tax has not gone away; it is just a lower rate of tax. There will be no fee for those estates valued below £50,000. Estates valued between £1m and £1.6m will pay £4,000 and for those estates exceeding £2m the fee will be £6,000.

The work undertaken by the Probate Registry to process an application is no different whether the estate is worth £50,000 or £5,000,000. It is this issue that for many reinforces the notion of a ‘stealth tax’. This fee does not correlate with complexity.

The Government proposes to publish guidance in due course on Ways to Pay for Probate Fees. This is likely to add more challenges to what is already a stressful time for many.

So, what does this mean for both solicitors and clients? A client with a home that is in their sole name may consider transferring this into joint names with their spouses or civil partners. It is important to tread with caution. ISAs cannot be held jointly so for these to retain their tax-free wrapper a Grant of Probate will be required. The fee may be reduced if all other assets are held jointly or the assets held in the deceased’s sole name are limited in value. The fee is only calculated on the basis of assets ‘passing under’ the Grant.

One must be very wary of the three Ds before transferring any assets into joint names. Death, divorce and debt are all potential threats to financial security for the joint owner. Careful consideration is needed before transferring assets. In addition, there may be tax implications for inheritance tax, capital gains tax and stamp duty land tax. Much will depend upon the recipient and nature of the asset.

This issue is likely to garner further press attention and it will be interesting to see how the Government responds. The MoJ’s approach seems to be to carry on regardless in the hope that the lower fee will not result in the same backlash. It remains to be seen whether or not that will be the case.