High probate fees slammed as stealth tax
A committee of the House of Lords has raised serious concerns over government plans to increase probate fees by up to 2,690% from April 2019.
In comments published on 21 November, the secondary legislation scrutiny committee repeated a statement made when a significant increase in probate fees was first attempted in 2017, concluding that:
“To charge a fee so far above the actual cost of the service arguably amounts to a ‘stealth tax’ and, therefore, a misuse of the fee-levying power.”
What is changing?
Under the proposals, the current flat probate fee of £155 (or £215 for a personal application) will be replaced by a banded scale of fees based on the value of the estate, as set out below. This means that an estate over £2m would suffer a 2,690% increase in costs for the same service.
A similar attempt to introduce a banded fee structure was made in February 2017, where the proposed fee scale ran up to £20,000. Despite widespread objections, the changes were only blocked last year because the necessary legislation did not manage to pass through parliament before the general election was called in May 2017.
|Value of estate before inheritance tax||Proposed Fee|
|Up to £50,000 or exempt from requiring a grant of probate||£0|
|£50,000 - £300,000||£250|
|£300,000 - £500,000||£750|
|£500,000 - £1m||£2,500|
|£1m - £1.6m||£4,000|
|£1.6m - £2m||£5,000|
Exclusions and remissions
While fees are being increased for larger estates, a larger number of the smallest estates will be exempted from probate charges. Under the proposals, the exemption limit will be increased from £5,000 to £50,000, removing probate fees from an additional 25,000 estates per year.
Also, probate fees will be removed from the general remissions scheme which allows individuals in financial difficulties to apply for help with court fees. The government’s position is that the personal representative applying for probate should always be able to recover any probate fees from cash funds of the estate.
While professional bodies have welcomed the lifting of the exclusion threshold, concerns have been expressed about removing access to the remissions scheme. Not all estates contain sufficient cash or liquid assets to fund probate fees, and personal representatives could experience hardship or be forced to take out loans in order to obtain probate.
Why are fees being increased?
The government considers that the new fee structure will be fairer and more progressive on the grounds that users of the court service who can pay more, should pay more. Since the existing fee structure already generates sufficient income to cover the administrative costs of the probate service, the increase will be used to cross-subsidise other parts of the courts and tribunal system.
The government is using specific powers to set the fee level above that needed to fund the probate service. The Lords committee has questioned whether these powers can genuinely be used for this purpose, noting that in the funding guidance issued to government departments, cross-subsidies are not considered to be standard practice.
Although the increases are not as substantial as those proposed in 2017, it is still difficult to see that the proposed system is fair when all applicants will still receive the same service.
Despite increasing concerns about inadequate funding of the courts system, there is no obvious basis for concluding that the estates of deceased individuals should subsidise either the criminal justice service or other sections of the courts system. Such estates will already be paying inheritance tax and potentially significant legal and professional costs. The increase also comes at the same time as the Probate Service is making cost savings by introducing more digital services.
Beat the rush
In 2017, there was a 20% increase in probate applications prior to the expected commencement of the new charges. It is expected that there will be a similar spike in applications this time, as fees are charged based on the date of application for probate and not the date of death.
Indications are that the changes will come in from April 2019, although the draft order to enact the changes states the new fees will take effect 21 days from the date the order is made. Commencement is therefore subject to the parliamentary timetable and could occur earlier (or later) than April 2019.
In 2017, Her Majesty's Courts and Tribunals Service (HMCTS) provided guidance on how to ensure that applications filed before the commencement date would escape the higher fees. There is no guarantee that HMCTS will be able to provide similar support this time, as there are now fewer probate registries and staff.
In the meantime, estates and their advisers need to be aware that significant fee increases are in the pipeline and consider how soon they could be in a position to apply for probate.
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Helen Thornley has a focus on personal and capital taxes. Initially training as an accountant before moving to tax, she worked in practice until her appointment as a technical officer in 2017. She also has an interest in the history of tax.