Stealing from the dead
The government has coined yet another tax on death. Can they think of no better way to raise money than to make probate a more grim experience?
We continue to live in a time of austerity and financial uncertainty, and the government clearly remains on its quest to get as much cash as possible from any available route. However, the recently announced hikes in probate fees represent a rather grim plunge to the depths in terms of potential sources of revenue.
They are, quite simply, yet another tax on death. Apparently, the government thinks it is not sufficient to tax inheritance alone, but also levy an increasingly heavy price for the extravagance of actually securing such inheritance in the first place.
The proposed hikes relate to the cost of obtaining letters of administration or a grant of probate on an individual's death - the legal documentation which allows the administrators or named executors to collect the deceased's assets and distribute them according to the intestacy rules or their will.
Since 1999, a fixed fee scheme has been in place, which has limited costs quite significantly through (most recently) a £155 solicitor's application fee and a £215 fee for a personal application. These fees are due to be increased astronomically, especially for estates worth over £50,000, which will be a significant proportion of the estates that go to probate in this country. In circumstances where estates are valued at over £2m, fees will go up to £20,000.
Such figures seem odd and disproportionate given the fact that the probate process is usually non-contentious. Disputes that end up in court do happen, but they are a comparatively rare occurrence. Given that the process is usually confined to paper, these fee hikes seem entirely unjustified.
A useful comparison might be with divorce, which could be viewed as a more elective process in so far as not everyone gets divorced or needs to resort to litigation. However, the court costs of issuing a divorce petition are set at £410 for this 'optional' process. Death and the administration of an estate, however, are not really a question of choice but necessity.
The on-going consultation attempts to justify these increases alongside the rise in the nil rate inheritance tax band, due from 2017. Such a justification is actually quite disingenuous, given that such fees will have to be raised from the net capital, as it is an administration expense to the estate.
So after payment of inheritance tax, the probate fee for estates over £2m will be over £30,000 as a total cost to the deceased and, ultimately, the beneficiaries. Some estates may lack the liquid assets to pay such exorbitant fees, and we could see a number of estates resort to bridging loans taken out by the executors. Is this really the new normal we want to create, where estates need to indebt themselves to pay for probate fees?
No doubt that we'll see modified succession planning as a result of these changes, so that they can pass to a survivor without needing a grant of probate and avoid the fees. This could include assets structured through jointly owned bank accounts and property owned as joint tenants. While this may be seen as prudent financial planning, it is not necessarily a good thing in every case.
Joint ownership is a rather blunt instrument as it only passes assets down to the next generation, and will not work in complex family situations such as second marriages. Rising dissatisfaction with the process - and its costs - may actually see an increase in disputes and litigation, straining the courts even further.
Aside from the impact on individual families and estates, the proposed reforms seem like quite a high price to pay, morally and otherwise, for the prospect of raising some coin for the government's coffers. Surely there are more prudent - and decidedly less grim - sources of revenue than taxing the deceased still further.
James Ward TEP is a partner and head of private client at the law firm Seddons