New Stealth Tax

From May 2017, probate fees are set to increase significantly from the current flat fee of £155 (or £215 if a personal application is made) to fees of up to £20,000, depending on the value of the estate. The increase in probate fees is undoubtedly considered to be a further burden for those recently bereaved to deal with at, what is, an already difficult time.

A fee is payable to the probate registry of the Court when an application is made for the grant of probate, which is often needed to administer an estate when someone dies. The grant of probate is the executors’ authority which will allow them to deal with certain assets in the estate, including any property or bank accounts where certain financial thresholds are exceeded and which can vary from one financial organisation to another.

Rather than having one flat fixed fee which is payable when the application is made, the fees will now be calculated on a banded structure based on the value of the estate before any inheritance tax is deducted. The fees range from £0 for those estates valued up to £50,000 to £20,000 for those estates valued above £2m. The new enhanced fees are being introduced using a statutory power which will apply to estates that can afford to contribute more and follows a consultation that was carried out on proposals to reform fees for grant of probate applications, which was published in February 2016.

Despite the overwhelming number of objections and concerns to the consultation that were made by various organisations, including firms of legal professionals and representative bodies such as the Society for Trusts and Estate Practitioners (STEP) and Solicitors for the Elderly (SFE), that the fees were excessive and unfair, the Government has confirmed that the new fee scale will be introduced in May 2017 (exact date to be decided).

It was thought that, in the circumstances, it would be appropriate to use a statutory power to charge enhanced fees for those estates that can afford to contribute more to ensure that we continue to benefit from a Court system that is properly funded and which costs more than £1bn a year to run. It is estimated that an additional £300m will be raised under this new fee structure by the 270,000 applications that are made each year for a grant of probate.

Whilst the level at which probate application fees become payable has increased from those estates valued at £5,000 to £50,000, probate fees will be removed from the general remissions scheme. It is considered that it is not appropriate that the fees should be covered by the scheme as it is not an issue of affordability but one of cash flow.

Executors will now have to consider how this new fee will be funded as part of their duties to administer an estate. It may be that there are sufficient cash funds available in the estate and that bank or building societies are able to release funds for this purpose. However, executors may have to think about other funding options which may be available including  the possibility of using their own personal assets, arranging a loan or using other credit products (which will be dependant on their own credit rating and may not be offered on such favourable terms) or even seeking financial assistance from the beneficiaries of the estate. This will be particularly relevant and of concern for those estates which are considered to be “asset rich but cash poor”. The executors will be able to recover these costs from the estate following the issue of the grant of probate.

It is widely anticipated that the new fee structure will undoubtedly lead to a huge increase in the number of probate applications being made and submitted by the executors before the new fees come into force and take effect in May and it appears that the probate registries are already bracing themselves for the influx.

Gabrielle Medland is an Associate Solicitor of the firm’s Private Client team based in our Exeter office. If you would like more advice or assistance regarding making an application for a grant of probate or estate administration, please contact Gabrielle Medland (01392 210700 or or any of her colleagues in the Private Client teams in Exeter, St Austell and Truro.