MoJ presses on with probate fee hike despite overwhelming opposition
New fees ignore asset-rich but cash-poor property owners
The government is going ahead with an unprecedented increase in probate application fees based on the value of an estate despite overwhelming opposition by lawyers.
Of the 853 responses to the consultation, 695 said it would not be fairer to move to a proportionate fee structure. Objections included the fact that the administration involved was the same irrespective of the value of an estate and that the cost should be set by reference to the service provided.
Some of the respondents who disagreed also pointed out that the proposed fee was set above cost recovery levels and therefore amounted to a form of taxation. Some commented that the service provided by the probate service was not satisfactory and would therefore be reluctant to pay more for the same inadequate service.
The new fees, which will apply from 1 May, will be calculated on the estimated value of the estate before inheritance tax and are payable upfront.
There will be no fee for estates valued at less than £50,000, which the government estimates account for 58 per cent of estates. Above that threshold, fees will start at £300 for estates valued between £50,000 to £300,000, rising to £20,000 for estates above £2m.
Probate application fees are currently set at £215 if the process is handled directly by the executor, and £155 if represented by a solicitor.
While just under 8 per cent of estates are valued at £500,000 or more, the fee jumps from £1,000 to £4,000 at that point, and then to £8,000 for assets over £1m, potentially affecting asset-rich but cash-poor clients in areas such as the south-east of England where property prices have boomed in the past two decades.
'Some people will be looking to review how they own property. We still have traditional families where the property is in the name of the husband. One option is to own the property as joint tenants, in which case a grant of probate will not be required and the surviving spouse can avoid the new fee,' suggested Claire Carberry, a partner at DMH Stallard.
Many married couple still own property as tenants in common, which, in affluent parts of the country, could still result in the surviving spouse having to sell the family home. In its response, the government suggested than bank loans would likely be available to executors and beneficiaries. 'But getting a loan isn't always that easy,' Carberry commented, 'especially for cash-poor clients who may not have the necessary income to repay it.'
Carberry also warned against the temptation to make lifetime gifts to children '“ a common solution to avoid inheritance fees which would now also avoid the new probate fees. 'Children may die, get divorced, or end up in financial difficulties that put the assets they've been gifted at risk. A better option would be to place these assets, especially property, in a trust.'
Sarah Phillips, partner at Irwin Mitchell, agreed. 'Older people may feel pressured to give away assets in their lifetime, to avoid these high charges,' she said. 'There may be ways of doing this effectively, without prejudicing the security of the persons living in the property, by using a trust, but many will not follow such safe avenues.'
Mitchell said there was a risk that children who had been gifted the house by their parents may not always act in their parents' best interests. 'Will the new 'owners' enable the parent to move to a suitable smaller property, or indeed stay at home if they still wish to when others feel they should move,' she wondered.
The increase of the threshold beyond which a fee is payable from £5,000 to £50,000 was another area where the majority of respondents disagreed. One reason was that the fees charged for higher value estate was set at a level that, in effect, subsidised those under the new threshold. Some respondents also suggested the exemption from probate available to joint tenants should extend to tenants in common.
The proposal that elicited the greatest dissatisfaction however was the new banding, with 810 of the 831 responses in this regards disagreeing with the new structure. One particular criticism was the unfairness in calculating the fee based on the value of the estate before payment of inheritance tax.
Jean-Yves Gilg is editor in chief at Solicitors Journal