The Government has published the results of its recent consultation on probate fee reform.

Full details of the consultation can be found at http://bit.ly/2lApYvW.

The following sets out a brief overview of the proposals and our view of the implications.

Grants of Representation

A Grant of Representation (‘Grant’) is the generic name for the formal document required to administer a deceased person’s estate, for example to transfer or sell property or to close bank accounts.  There are several types of Grant, the most common being a Grant of Probate, where the deceased left a Will, or a Grant of Letters of Administration, where the deceased did not leave a Will (known as intestacy).

A Grant is issued by the High Court through one of its many local probate registries. Currently there is no fee to pay to the probate registry on estates worth less than £5,000.  In relation to all other estates the probate registry charge a fixed fee, of £155 (when made through a solicitor) or £215 (when made personally, i.e. without a solicitor).

This is a standalone fee and is separate to the inheritance tax which may be payable and the fees of the solicitor.

The Consultation

The government canvassed the opinion of solicitors, professional bodies such as STEP, the British Bankers Association, members of the judiciary and members of the public. It is clear from the consultation paper that the overwhelming majority of respondents were against the proposals. Indeed, only 13 of 831 respondents were in favour of the fees set out in the below table.

The main reasons that respondents gave for disagreeing with the proposals were that:

  • the size of the fee should be set according to the cost of providing the service;
  • the administration involved and therefore cost to the Probate Service is the same regardless of the value of the estate;
  • as the proposed fees would be set above cost recovery levels, they in effect amounted to a form of taxation;
  • the fees proposed in the consultation were excessive and represented too great an increase from current fees; and
  • fees should not be raised in one part of the court and tribunal service to cross-fund other parts of the system.

Notwithstanding such overwhelmingly negative responses it appears the Government is intending to bring forward their proposals without amendment and, subject to parliamentary approval, the fee rises are expected to come into force in May 2017.

The changes

The table referred to in the consultation sets out the following fee structure from which it can be seen that the fees could be as much as £20,000 for the largest estates, a 12,900% increase on the current fee!

Value of Estate (before Inheritance Tax) Proportion of Estates Proposed Fee
Up to £50,000 (or not requiring a grant) 58% £0
Over £50,000 but under £300,000 23% £300
Over £300,000 and up to £500,000 11% £1,000
Over £500,000 and up to £1 million 6% £4,000
Over £1 million and up to £1.6 million 1% £8,000
Over £1.6 million and up to £2 million 0.3% £12,000
Over £2 million 0.5% £20,000

The implications

Whilst the smallest of estates will benefit from a welcome probate fee exemption, the proposals will have a disproportionate impact on larger estates. Indeed, fees of £4,000 – £20,000 are sufficiently high as to make them a substantive factor in estate planning. In particular, clients and their advisers will need to consider:

  1. Lifetime gifts.  The use of gifts to reduce estate value for inheritance tax purposes is already commonly considered when undertaking estate planning.  In view of the above proposals some thought should also be given to whether estates could be brought below the nearest relevant threshold, perhaps using only modest gifts.
  2. Joint ownership of assets.  Some joint assets pass outside of the estate (those held on joint tenancy) and as such would not contribute to the above calculations of estate size.  However, some other joint assets (those held as “tenants in common”) do pass through the estate. As such, a review of joint ownership arrangements should be undertaken to ensure that they remain suitable.
  3. Cashflow. The availability of funds to meet the new fee is acknowledged to be an issue within the consultation itself.  It is important to note that the grant of representation cannot be extracted until the fee is paid and there is likely to be only limited access to the estate assets prior to the grant being issued.  As above, this is an issue which will usually be considered in the context of inheritance tax but will now need to be reconsidered due to the substantial additional requirement for liquidity.  In particular, the fee will still be payable in estates where inheritance tax is not being paid, most significantly where a husband or wife dies and leaves their estate to the surviving spouse.
  4. Executorship. Careful thought needs to be given as to how robust executor clauses are.  It is not yet clear whether multiple grants for the same estate would incur duplicate fees of this magnitude.  A need to take multiple grants (perhaps due to executor conflict, a minor executor coming of age etc.) could prove costly.

Now, more than ever, valuable estates are under threat from liabilities such as inheritance tax and nursing home care fees.  The probate fee increase represents yet another factor to consider in effective estate planning. It is also concerning that such significant costs will naturally increase pressure on vulnerable clients to divest themselves of assets, potentially leaving them with insufficient funds for themselves.  It also may lead to an increase in the addition of third parties to bank accounts and/or the placing of assets into joint names both increasing the risk of financial abuse. As such, it is important that clients do not feel pressured to do so and we would always recommend obtaining specialist legal advice before making any such decisions.

If you or your clients would like to discuss this article please contact us.