Death tax trap that could cost families thousands

BEREAVED families face a tax trap due to government delays in processing vital forms.

To take control of someone’s estate when they die, families typically need to apply for a document called a grant of probate. This currently costs £215 — or £155 if you use a solicitor. But the fee is increasing to as much as £20,000 from May.

However, grieving families who are in the process of applying for probate have been hit by a backlog at the tax office.

Money Mail can reveal that some are experiencing delays of up to two months in receiving the tax forms they need.

This means they could struggle to get their application to the probate office before the new, higher charges come into effect.

Under the new rules, anyone who inherits an estate worth more than £50,000 will see the fee for probate rise to between £300 and £20,000.

Estates worth between £50,000 and £300,000 will cost £300. Between £300,001 and £ 500,000, it will be £ 1,000, and between £500,001 and £1 million, the bill will hit £4,000. Fees continue to increase to a maximum of £20,000 for estates of more than £2 million.

Probate is free if the estate is worth less than £50,000 (under the current rules, it’s free for those under £5,000).

Documents published in the Budget this month show the tax grab will net the Treasury £1.5 billion in just five years.

But applying for probate can take several months, or even years if the estate is complicated. And it is only now emerging that families who lost someone before the fee hikes were confirmed in February may still be caught up in the tax raid.

To apply for probate, the executor of the will must complete a lengthy form detailing any property, investments and savings owned by the deceased.

This means that you need to get properties valued and also write to banks and investment and pension companies.

They must also swear an oath at a probate registry office or in front of a solicitor.

On top of this, executors have to fill in inheritance tax forms.

If the estate is likely to be liable for tax — currently applicable if it’s worth more than £325,000 — the executor will need to submit an extra form that has been stamped by HM Revenue & Customs. And this is where families are experiencing delays.

Solicitors say there is a growing backlog at HMRC as people rush to apply for probate before the fees increase. The taxman is taking eight weeks to process the forms, up from three weeks a month ago. The Ministry of Justice has told some solicitors that families will not be penalised for delays at HMRC.

It says if they submit everything but the inheritance tax form before May, and make a note that they will send it separately afterwards, they can pay the current fee. But this advice has not been widely publicised.

Many families submit these forms themselves rather than use solicitors, so may not know to send their application without the inheritance tax form and could end up missing the deadline.

On top of this, the exact date that fees will increase has not yet been confirmed.

‘There doesn’t seem to have been any effort to make the public aware of these changes and how they may be affected,’ says George Hodgson, chief executive of the Society of Trust and Estate Practitioners. ‘This could have been completely avoided if the Government had said the new fees would take effect for all deaths on or after May 1, 2017, for example.

‘Instead, it has said the new fees will apply to all applications received by the probate service on or after the implementation date of the new fees, irrespective of the date of death. One of our members has had a client in her late 70s crying on the phone as she is so desperate for help.

‘She’s found it hard enough losing her husband of 40 years and is rushing to fill in the inheritance tax forms, which are complicated, to avoid the fee increase.’

Solicitors say changes to the inheritance tax allowance being introduced next month could further increase delays as tax officials and lawyers get to grips with the new rules.

From the start of the next tax year on April 6, individuals will get an additional £100,000 inheritance tax allowance if they pass their home to a direct descendant — children or grandchildren.

This is on top of the £325,000 per person allowance and will increase by £25,000 each tax year until it hits £175,000 per person in 2020.

If families rushing to beat the May deadline make mistakes on the inheritance tax forms, they risk being fined.

‘If someone dies in the next few weeks, this fee hike is going to put a lot of pressure on people in a distressing situation,’ says Claire Davis, of Solicitors for the Elderly.

‘ All this rushing will inevitably lead to mistakes and then to even more delays. It’s an absolute nightmare.’

An online petition calling for the probate fee hike to be scrapped has more than 12,000 signatures. If it reaches 100,000, the issue will be debated in Parliament. You can sign it online at: petition. parliament.uk/petitions/188175.

A spokesman for the Ministry of Justice says: ‘ We have been absolutely clear about our plans to reform probate fees. We will introduce a fairer system, meaning more than half of estates pay nothing and more than 90 pc pay less than £1,000.’ A spokesman for HMRC said: ‘Personal representatives need not wait until HMRC has assessed any inheritance tax documents before lodging a probate application.’