£6,000 pro­bate fee is ‘stealth death tax’

The Daily Telegraph - Your Money - - MONEY -

The Gov­ern­ment is push­ing ahead with con­tro­ver­sial plans to dra­mat­i­cally raise the fees paid by fam­i­lies when they wind up the es­tate of a loved one. The pro­pos­als will see es­tates worth £2m or more pay £6,000 in pro­bate fees. The 3,770pc in­crease is a re­duc­tion on the orig­i­nal plans, which would have in­volved a bill of £20,000 for the largest es­tates.

Es­tates with a value of be­tween £1m and £1.6m will have to pay £4,000. In Lon­don and the South East, where high house prices have led to in­creased prop­erty wealth, many fam­i­lies will be caught out.

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

The money is due be­fore any funds can be re­leased from the es­tate and so be­reaved rel­a­tives may need to take loans to cover the ex­tra cost.

The Gov­ern­ment said the changes were nec­es­sary to fund the courts sys­tem and were a “fair and more pro­gres­sive” way to pay. It es­ti­mated that the move would raise £185m a year by 2022-23.

As Tele­graph Money has pre­vi­ously warned, the charge is paid in ad­di­tion to in­her­i­tance tax, which is levied at 40pc on as­sets above each in­di­vid­ual’s £325,000 thresh­old.

It had been hoped that the Gov­ern­ment would drop the plan in the face of fierce op­po­si­tion, but the rules are now ex­pected to be pushed through by April 2019.

A spokesman for the Min­istry of Jus­tice said the pay­ment was “not a tax” be­cause the money raised was ring-fenced for the courts and tri­bunal ser­vice. The min­istry said it had “lis­tened care­fully” to con­cerns and re­vised its fee bands as a re­sult.

How­ever, crit­ics have at­tacked the de­ci­sion and de­scribed the new rules as a “stealth tax on death”.

Ian Dyall of fi­nan­cial plan­ner Til­ney said: “This is essen­tially a form of stealth tax. There is no rea­son that a large es­tate is any more costly to ad­min­is­ter than a smaller es­tate so the ad­di­tional cost is pure rev­enue rais­ing.”

He­len Stew­art of law firm Thom­son Snell & Pass­more said the new fees did not rep­re­sent the true cost of the ac­tual work in­volved in deal­ing with a pro­bate ap­pli­ca­tion.

“All grant ap­pli­ca­tions in­volve the same amount of work. Re­gret­tably, this an­nounce­ment will be seen by many as an­other form of wealth tax,” she added.

An­drew Wilkin­son of Shake­speare Martineau, an­other firm, said the new sys­tem made “lit­tle sense” and that ex­ecu­tors could strug­gle to find the nec­es­sary funds.

He added that es­tates were a “soft tar­get” for tax­a­tion and that “it seems in­evitable that th­ese fees will in­crease fur­ther over time”.

How to beat the ‘death tax’

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 the fees. In­her­i­tance tax al­lowances – £325,000 per per­son plus £125,000 per per­son on a main res­i­dence – are not rel­e­vant. The fee is a sep­a­rate ad­min­is­tra­tion charge and does not de­crease the over­all value of your es­tate for in­her­i­tance tax pur­poses.

Rachael Grif­fin, a tax ex­pert at Old


Value of es­tate (be­fore in­her­i­tance tax)

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 Mu­tual Wealth, the in­vest­ment com­pany, said peo­ple should con­sider giv­ing away some of their es­tate dur­ing their life­time, us­ing ei­ther a “dis­cre­tionary” or a “bare” trust.

For ex­am­ple, a £3m es­tate would have to pay £6,000 in pro­bate fees but, if £2.1m were given to a bare trust with the chil­dren as ben­e­fi­cia­ries, the es­tate would fall in value to £900,000 – cut­ting the pro­bate fee to £2,500. As well as sav­ing £3,500 on pro­bate fees, there would also be a £840,000 in­her­i­tance tax sav­ing, as long as the in­di­vid­ual lived for seven years af­ter mak­ing the gift.

Mrs Grif­fin rec­om­mended pay­ing into a life as­sur­ance pol­icy that paid out on death to cover pro­bate fees and in­her­i­tance tax.

She said: “Pro­vided that the pol­icy is writ­ten ‘in trust’, it can be ac­cessed im­me­di­ately on death with­out the need for pro­bate.

But the new charge can be beaten with care­ful plan­ning, say Sam Brod­beck and Harry Bren­nan ‘Es­tates are a soft tar­get. In­evitably th­ese fees will rise fur­ther over time’

“This is par­tic­u­larly im­por­tant if your fam­ily home is your main as­set and your ben­e­fi­cia­ries need ac­cess to funds to pay the pro­bate fee.”

But be warned: as Tele­graph Money has pre­vi­ously re­ported, trusts whose as­sets do not pass di­rectly to ben­e­fi­cia­ries (usu­ally chil­dren, grand­chil­dren or stepchil­dren) do not qual­ify for the new res­i­den­tial nil-rate in­her­i­tance tax band or “fam­ily home al­lowance”.

Trusts whose as­sets are passed di­rectly, such as “in­ter­est in pos­ses­sion” or “be­reaved mi­nors’ trusts”, do qual­ify. There are other draw­backs of us­ing cer­tain trusts. Gifts into dis­cre­tionary trusts at­tract an up­front in­her­i­tance tax charge of 20pc on amounts of more than £325,000.

How­ever, the fu­ture of trust tax­a­tion is now be­ing called into ques­tion and ex­ist­ing loop­holes and breaks could be scrapped. This week the Gov­ern­ment an­nounced a con­sul­ta­tion into the way trusts are taxed to make “tax­a­tion sim­pler, fairer and more trans­par­ent”.

It is now ask­ing for views and ev­i­dence on re­form. The con­sul­ta­tion will close at the end of Jan­uary.

A row of houses in Not­ting Hill. High prop­erty prices mean many fam­i­lies in Lon­don and the South East will be caught out

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