How to cut new ‘death tax’

Some estates will soon be forced to pay £20,000 in probate fees under new government plans. Sam Brodbeck explains how families can cut their bill

In one of the most unpopular moves of recent years, the Government is introducing a dramatic rise in probate fees, which is likely to take effect next month. A “grant of probate” allows the executor to pay inheritance tax (IHT), settle debts and carry out the wishes of the deceased as expressed in the will.

The Government said the increases were “necessary” to fund the courts and tribunal systems – but the move has been criticised as a stealth “death tax”, and is expected to bank the Treasury £1.5bn over five years.

In the most extreme cases, estates worth £2m or more will have to pay £20,000 to execute the wishes of the deceased (see table for the full costs).

People who live in areas that have experienced huge house price rises over the past few decades, such as London and the South East, are most at risk.

The Government said no estate would pay a fee of more than 1pc of its value. It added that 92pc of estates would pay £1,000 or less, 98pc would pay £4,000 or less, and fewer than 2pc of estates would pay between £8,000 and £20,000.

Unlike income tax, which operates in tiers, the probate fee structure means that being £1 over a threshold can cost thousands of pounds in extra fees.

Currently, a £215 flat fee applies if probate is applied for by friends or family, or £155 if a solicitor completes the process.

However, with careful planning there are ways to limit probate fees.

HOW MUCH PROBATE WILL YOUR ESTATE ATTRACT?

Value of estate

Up to £50,000 or exempt from requiring a grant of probate £50,000-£300,000 £300,000-£500,000 £500,000-£1m £1m-£1.6m £1.6m-£2m Above £2m Probate fees are based on the value of your estate on death. This means that only by reducing the value of the estate can you cut probate fees. IHT allowances – £325,000 per person plus £100,000 per person on a main residence in 2017-18 – are not relevant. Rachael Griffin,Griffin a tax expert at Old Mutual W Wealth, the investment co company, said peop people should look to g give away some of t their estate d during their li lifetime using a “d “discretionary” or “b“bare” trust. F For example, a £3m estate would hav have to pay £20,000 in pr probate fees. But by givingg away £2.1m to a b bare trust where the their children are ben beneficiaries, the est estate would fall in valu value to £900,000 – cut cutting the probate fee to £4,000.