The Stealth Tax that no one is talking about
Bereaved families may soon face very substantial increases in court fees when they apply for a grant of probate. (The grant is a court document which enables them to gather in and administer the estate of the deceased relative). Currently, there is a flat fee of £215 on an application to the Probate Registry for a grant.
A new tiered system was supposed to be introduced from 1 April 2019. It has been delayed due to the Parliamentary debates over BREXIT. However, it could come into effect by the end of April introducing the following fees: –
|Estates valued up to £50,000||no fee|
|£300,000 to £500,000||£750|
|£500,000 to £1m||£2,500|
|£1m to £1.6m||£4,000|
|£1.6m to £2m||£5,000|
This amounts to an increase of 2,690% on estates worth £2 million and above. The Ministry of Justice expect to raise an extra £185m a year by 2022/23 as a result of these changes. They justify it on the basis that; “The income raised from probate fees will go towards funding a more efficient and effective courts and tribunals system.” Ministers have classified the charges as a “fee” rather than a “tax” meaning that the legislation could be passed by a statutory instrument, without a parliamentary bill debated and voted on by both Houses of Parliament. However, it may be blocked by Labour Party opposition.
If the increases are introduced the effect will be that an estate is taxed twice. Once with the assessment of 40% tax on assets which take the value above the £325,000 inheritance tax threshold and again with the probate fee. The fee will be assessed on the date that the executors apply for the grant not the date of death.
What happens when an elderly widow is left in a large, valuable house on a reduced spouse’s pension and a modest fixed income from annuities? She may have to find between £2,500 and £6,000 in order to obtain a grant of probate at a time when she is very vulnerable and does not have swift access to such funds, particularly when she is also paying for her husband’s funeral.
The best way to minimise exposure to these increased fees is to obtain timely estate planning advice. With careful lifetime tax planning and a well-drafted Will, it is possible to reduce the size of your estate on death.