The New Death Tax

Despite the overwhelming opposition expressed during the Government’s consultation, it was recently announced that from May 2017 (TBC), there will be a significant change to probate fees.

The new fees will apply regardless of when the death occurs and instead of the current flat probate fees of £155 if applied through a solicitor (or £215 for a personal application), the fees will now be based on the value of the deceased’s estate. 

The fee structure as of May 2017 (TBC) will be as follows:

Value of estate New fee % change (from £215)
Up to £5,000 £0 0%
£5,000 – £50,000 £0 -100%
£50,001 – £300,000 £300 +40%
£300,001 – £500,000 £1,000 +365%
£500,001 – £1m £4,000 +1,760%
£1m – £1.6m £8,000 +3,621%
£1.6m – £2m £12,000 +5,481%
Over £2m £20,000 +9,202%

Unlike Inheritance Tax (IHT), the probate fees will be based on the value of the estate before spouse exemption, business property relief and agricultural relief. However, the value of foreign assets, jointly owned assets that pass by survivorship, and assets held in trusts (including pension funds) do not form part of the value for probate purposes. Should we therefore look to put more assets into joint names or trusts in the future which will also avoid the double charge for assets passing first to spouse and then to children? Probate tax planning should certainly now be considered alongside IHT planning.
As with IHT, the probate fees are payable before the Grant of Probate is issued when access to funds is limited, but there is no provision for payment by instalments. Banks, building societies and National Savings will arrange for these “taxes” to be paid directly from the deceased’s accounts.

However, with asset rich/cash poor estates, the executors who are already faced with the headache of how to fund the IHT will also have to consider how to fund these additional charges. Banks are not always willing or able to make bridging loans, and investment managers are unlikely to be able to sell any stocks/shares until a Grant of Probate has been issued. The executors will therefore have to turn to the beneficiaries or other family members for help. Probate registries have stated that they can help executors to access certain assets for the sole purpose of paying the probate fees. It remains to be seen if executors will be able to add the cost to the IHT and obtain a grant on credit.
Where death has already occurred, the probate application must be lodged before the May deadline (yet to be confirmed) to avoid paying the new charges. However, as it usually takes a few months to gather all the information required for the completion of the inheritance and probate forms, some estates may be unable to achieve this.

Update: Following growing opposition, recent announcements were made that the tax is to be reviewed, may not come in to force in May and could even be scrapped. We will monitor the situation and report back on any changes that arise.

Mai Brown
T | +44 (0)20 7556 1486
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Mary Hase
T | +44 (0)20 7556 1328
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