The new probate fees are a stealth tax, and could be a slippery slope leading to tax hikes for the wealthy, writes James Ward
The government’s recent announcement of substantial increases in the fee to obtain the grant needed to take control of a deceased’s estate have been dubbed 'a new death tax' by the tabloids. And rightly so.
To my mind, the new fees, payable to the probate registry and due to take effect in April 2019, is a stealth tax aimed at the wealthier estates. Its aim is to raise £145 million to pay for court reforms and means that, in future, an estate worth over £2 million will be paying £6,000. The levy will be applied on a sliding scale down to estates worth £50,000 and estates worth less that that will be exempt. The new tariff represents a dramatic increase on the current fees, which peak at £215 for a personal application, to secure the necessary documentation.
While the new fees are far less than the £20,000 fee for estates over £2 million that was put forward a few years ago, they are still punitive. They open a dangerous precedent for disproportionate court fees given the limited work actually required to issue a grant. Furthermore, this change will leave many estates struggling to pay the fee up-front when assets are tied up in frozen bank accounts or property, and banks will need to allow access to accounts to pay this. However, perhaps the most worrying possible fallout is that this 'tax' may push people away from using wills.
In order to reduce their estates before death, individuals may turn to gifting during their lifetime which could leave them financially vulnerable for the rest of their life or see assets passing through an unstructured legacy. For instance a death bed gift prompted by a wish to slip into a lower band for probate fees may see money passing into the wrong hands with limited recourse and be contrary to the wishes in the will.
Others may attempt to mitigate the probate fee by using the survivorship rules of joint property and joint bank accounts. The survivorship rules see jointly owned property automatically pass on death rather than via a will, which means the value is not included in the value of the estate at the grant application stage and therefore not included in the calculation for the probate fee. This can be very effective in some cases, such as on first death of a simple estate of a husband and wife. However, automatic inheritance can also lead to inequality between children and a misunderstanding as to who gets what.
I would not disagree with those who have called the new fees a new tax. The richer you are at death, the more you pay, and for HNWs this is on an estate already subject to 40% inheritance tax.
And now that the precedent has been set, I wouldn't be surprised if this tax was used by future chancellors to squeeze the wealthy even further.
James Ward is head of Private Client at Kingsley Napley