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Proposed New Stealth Tax on Estates

Proposed New Stealth Tax on Estates

By: D. Little

Tags: Inheritance, Private Client, Probate

The Ministry of Justice have recently issued a consultation paper with their proposals to reform the application fees for Grants of Representation (The application made for Probate or letters of administration, to allow you, as their executor or administrator, to deal with their estate)  in England & Wales. 
The MoJ propose to scrap the current fixed fee of £155 (£215 for personal applications) in favour of a fee which rises in proportion to the value of the estate. 
They start with a sweetener by saying they will increase the band for no fee from the current level of £5,000, to include estates valued at up to £50,000, but then they hit with the real sting of the new stepped rates, blithely saying that “they will never exceed 1% of the estate”. The new proposed rates are as follows: 
The MoJ say that the fees will apply to all applications, with no distinction between those made by solicitors and those by personal applications. 
The second column in the table shows the proportion of estates in England & Wales which the MoJ claim will fall into each band. 
However in our recent experience - and especially with continually rising house prices - there are a great many estates worth more than £300,000. The average house-price in England is now £288,000, and 64% of homes in England and Wales are owner-occupied, so it seems likely that that the proportion of estates which would be charged the £1,000 fee (equating to an increase of over 500% on the current fee) is likely to be far greater  than the MoJ claim. 
The fees rose from £40 to £155 only a few years ago, but these proposals would mean rises of 50% to 600% for estates worth between £50,000 and £500,000. The consultation papers describes the increase for estates worth up to £300,000 as a .modest increase of £85’, skating over the fact that this is a £145, or 55% increase for someone using a professional, and a 40% increase for someone acting in person. For estates where the value of the deceased’s home pushes the estate over £300,000 the ‘modest increase’ will be £785,a 365% increase (for those using a professional, the increase is 535%)
The MoJ also go on to say that the HM Courts & Tribunal Service’s “Help with Fees” scheme will no longer apply to Grant applications apart from in “exceptional circumstances” . In practice, this is likely to mean that those applying for probate will have to fund the fees up-front.
The MoJ say  that most banks are prepared to advance money from the bank accounts of someone who has died,  for payments for  funeral costs, probate fees and Inheritance Tax, ahead of any Grant being issued. However, this will not help in cases where  there are insufficient liquid funds available in the estate. Funeral costs can be several thousand pounds so those with modest savings may face a choice between paying for a funeral, or paying the new fees.
The MoJ appear to recognise that many estates will not have sufficient funds, as they go on to say that they anticipate that executors will apply to a bank for a bridging loan in those situations! This would of course give rise to interest charges which, where the main asset is a property which must be sold, could be substantial.
The MoJ’s justification for this enormous increase  in fees  is that, in addition to reducing the National Deficit and thus the burden on the tax payer, the Government claim that the funding that would be raised is needed to assist the courts and tribunals service  in moving from a paper based system to an on-line system. However, this argument would appear to mean that the MoJ is looking for a minority of taxpayers to meet costs rather than meeting those costs from general taxation. 
The consultation documents are available here on the government’s website, and responses can be sent until 1st April this year. 
In the meantime, our Private Client department remains available to help advise you in relation to all issues relating to wills, probate and estate planning. Contact us if you would like to make or update your will, or if you need help in dealing with the estate of someone who has died.


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