The proposed increase in probate fees has moved another step closer to an April 2019 implementation.
The new fee structure, set out in the draft Non-Contentious Probate (Fees) Order 2018, will see a new banded structure for probate fees linked to the value of the estate replacing the current flat fee that applies to all estates regardless of their value.
If you need to refresh your memory on what probate is, and why you need it, take a look back at a couple of the previous blog posts.
What are the changes to probate fees?
The proposed increased fees are set out as follows:
Estates from £0 – £50,000: £0.00
Estates between £50,000 to £300,000: £250
Estates from £300,000 to £500,000: £750
Estates from £500,000 to £1million: £2,500
Estates from £1 million to £1.6 million: £4,000
Estates from £1.6 million to £2 million: £5,000
Estates over £2 million: £6,000
What happens next?
The proposed fee system is set out in the draft Non-Contentious Probate (Fees) Order 2018 which is being proposed as a statutory instrument. Introducing this legislation as a statutory instrument means the proposed fees were debated by the House of Commons Delegated Legislation Committee (made up of a select number of MPs) last month who narrowly voted, nine to eight, to approve the draft order.
Having overcome this potential hurdle, the statutory instrument will now go before the House of Commons. It is very unusual for statutory instruments to be overturned by the House of Commons, and for that reason it is likely that the proposed new probate fees will be approved. There is no fixed date for when the House of Commons will consider the fee increase, though the Government has indicated that the new fees will be introduced at some point in April 2019.
Why the controversy?
Statutory instruments are traditionally used to introduce routine legislation often covering matters such as highways and planning matters. However, many commentators, including SFE and STEP, have correctly made the point that linking the fee to the value of the estate is similar to a tax on the estate. A potential fee of, for example, £5000 seems disproportionate for the relatively routine process associated with the issuing of a grant of representation.
It is a well-established legal principle that proposed tax rises are introduced through a Parliamentary Bill to be considered by both the House of Commons and House of Lords. The classification of the probate fees as a statutory instrument means the massive hike in fees has avoided the full scrutiny of Parliament.
The effects of the changes
It is clear that many estates will now attract much higher probate fees under the new regime. The problem for personal representatives is that they will need to pay the fee before they can access the deceased’s assets, as banks do not usually release funds before a grant of representation is issued. Whilst banks will often release funds to pay inheritance tax, it is not yet known whether any banks will extend this service to the payment of probate fees. This could leave personal representatives, or the deceased’s family, having to pay substantial probate fees from their own funds.
As highlighted by Hugh Lewis-Morgan in his recent SFE blog post (https://sfe.legal/probate-fees-then-and-now/) there is also the concern that elderly and vulnerable clients may feel pressured into the use of inappropriate trusts, lifetime giving and transferring assets into joint names in a bid to reduce their potential estate to avoid the proposed fees. These types of transactions could mean elderly clients giving up control of their own assets late in life. There are many risks associated with, for example, transferring the ownership of a home to other parties – even family members.
What can I do about it?
There is little action that can be taken at this stage, though the Government has confirmed that it will publish guidance on how to pay the fees shortly before introduction. It is difficult to speculate on the unpublished guidance, though - a system whereby the fee might be payable after the grant of representation has been issued, e.g. within a set time period, is one possible solution. However, there could, quite understandably, be some reluctance to allow personal representatives to receive the grant on a promise to then pay the fee due.
Alternatively, banks may well be encouraged to release funds to pay the court fee prior to the grant of representation being issued, though it would be difficult to require all banks to release funds. Whatever process is put in place to pay the fees, there will undoubtedly be frustration at a greatly increased cost associated with obtaining the grant of representation.
Individuals contemplating giving away their assets to potentially avoid the increased probate fees should always seek legal advice before committing themselves to transactions that could potentially lead to family disputes and problems with paying for care home fees.
If you have any probate issues you wish to discuss, please contact Bryony Wilmshurst from Cunningtons Solicitors' Wills and Probate department.