Yesterday, Justice Minister Lucy Frazer MP issued a written statement by which she revived plans to introduce a new banded structure for probate court fees based upon the value of the estate. These are the fees that are paid when an application for a grant of representation is made following a person’s death.
A grant is the document that confirms the appointment of the executors under the terms of a valid will or gives authority to the administrators to act where there is an intestacy. It is the document that unlocks assets following a person’s death as it gives the executors or administrators the authority to deal with the deceased’s bank accounts, investments, property and other assets. Unless the value of the estate is very small or all assets are held jointly with another, it is normally necessary to apply for a grant.
At the moment, there is a flat fee of £155 payable when an application for a grant is made by a solicitor or £215 where the application is made by an individual. No fee is payable if the net value of the estate is below £5,000.
Between 1981 and 1999 the probate fee was linked to the net value of the deceased’s estate. The Government is now planning to return to this approach, which will lead to significantly higher charges for wealthier estates. Under the new proposals, the flat fee will be replaced by a tiered system which will result in a probate fee of £6,000 for estates worth more than £2 million. There are six proposed bands of fees applicable to estates between £50,000 and £2 million, but the cap of £6,000 means that estates of £2.1 million will incur the same costs as those worth £20 million. Whilst the headline figure of £6,000 is significantly less than the £20,000 proposed in February 2017 this is still nearly forty times the current fee. The previous proposals were dropped by the Government just prior to the general election, following concerns raised by MPs and Peers over whether the Ministry of Justice was acting beyond its authority by bringing in what amounts to a further tax on death rather than a fee.
The proposed increase in the probate fees is part of the Government’s review of Her Majesty’s Courts and Tribunals Service (HMCTS) and yesterday Lucy Frazer stated that all money raised from the increased fees will be spent in improving and modernising HMCTS, including but not limited to the Probate Service.
It is estimated that the increased fees will raise £145 million a year from 2019/20, rising to £185 million by 2022/3, to improve and streamline HMCTS. Given the above figures, and whilst the Government is arguing that the new fees will never be more than 0.5% of the value of the estate and around 80% of estates will pay £750 or less, these charges are still likely to be viewed as a stealth tax on the recently bereaved. Concern has also been raised as to whether asset depletion (by lifetime giving or the increased use of trusts) will be further utilised to avoid probate fees, with a specific concern that pressure may be applied to elderly and vulnerable clients.
Probate fees are paid upfront, before the grant is issued. Whilst this may be economically viable at £155, it is more unlikely at £6,000. The cost of borrowing this £6,000 will also be another expense of the estate, which will have to be funded prior to a grant being issued. This is in direct contrast to inheritance tax, which may be paid in instalments on certain significant assets, particularly the family home. Also, on the first death of a married couple or civil partners there will often be no inheritance tax to pay due to the surviving spouse exemption. However, there will still be a probate fee to pay before a grant can be obtained, which could significantly erode the liquidity within the estate and in certain circumstances could result in the family home having to be sold. This could have a considerable impact in the South East in view of the increase in property prices in recent years. Whilst the written statement states that the cost of the fee is recoverable from the estate and executors have several options to fund it, there are still a lot of questions as to how this will work in practice, particularly where estate assets are generally frozen until the grant is obtained.
Interestingly, the Justice Minister was quite blatant in saying that these fee increases were to support HMCTS as a whole and not just the Probate Service. How can this be squared with the Office of the Public Guardian providing rebates for the fee for registration of an LPA on the basis that registration did not cost as much as they had been charging? Also, the paperwork emanating from the Probate Registries in a £10,000 or a £10 billion estate is not appreciably different, again making it difficult for the proposed increase in the probate fees to be justified.
Therefore, we consider that these proposed increased fees are still unfair and unjust.
As yet, we have received no indication as to timing for these changes, apart from the fact they will take effect 21 days after the order is made by the Government.