More ‘death taxes’ on the way…
Posted on 6th March 2017
Not only have the Ministry of Justice (MoJ) decided to press ahead with a significant rise in probate fees, but it seems that the Treasury is considering a compulsory levy to fund social care costs. The levy would be taken out of someone’s estate when they die, whether or not they needed social care during their lifetime. Sources have indicated that it is unlikely to feature in the Budget but that a consultation or study may well be commissioned to consider this further. This would be a significant U-turn by the Government after they ridiculed a similar plan by Labour in 2007.
Despite overwhelming opposition to the proposed increase in probate fees, they are due to go up substantially from May 2017 and will be charged on a banded system rather than the current flat fee system. Probate fees are charged by probate registries to issue the grant, which is the legal document that enables executors to close bank accounts and to sell shares, property and other assets. In most cases, they cannot deal with an estate without it.
There will be no fee for estates valued at less than £50,000, but for estates valued at between £500,000 and £1m, not at all uncommon when a property (or a share of one) is taken into account, the fee will now be £4,000. For estates of over £2m, the fee will be £20,000. Currently, the flat fee is £155 for a solicitor application and £215 for an individual application, regardless of the value of the estate.
The MoJ have said that the income raised by probate fees already covers the cost of the probate service, but they want the additional money (estimated to be £250m a year) to cover the costs of funding the courts and tribunal systems. So, in effect, probate fees will be subsidising other parts of the court service – and are a further tax on the dead and an increased burden for those who are left behind.
While a banded system may be more progressive, it feels that this has gone too far, with fees for estates of just over £500,000 facing a 1,760% increase and those of over £2m facing a 9,202% increase. This is despite the fact that the work involved in issuing the grant is the same for both.
The New banded system will come into effect in May 2017:
- Estates valued at between £50,000 and £300,000 – £300
- Between £300,000 and £500,000 – £1,000
- Between £500,000 and £1m – £4,000
- Between £1m and £1.6m – £8,000
- Between £1.6m and £2m – £12,000
- Over £2m – £20,000
Not only will it be difficult to fund the fee, which is payable before probate is granted and before the executors have access to funds, but for those estates which are asset rich but cash poor e.g. own a home, but have limited savings, it could mean having to sell the property to pay the fee. There are concerns that this puts extra pressure on the elderly and vulnerable to start giving assets away during their lifetime, to try and minimise the cost to their families – potentially putting themselves at risk. It also adds to the tax burden that is payable on an estate and in many cases, creates one where there may be no inheritance tax to pay such as when an estate is left to a surviving spouse or civil partner or to charity.