The Parliamentary Under Secretary of State for Justice Lucy Frazer QC MP has recently announced that she has put new legislation before Parliament, which if implemented, would introduce a new, banded structure of fees (depending on the value of the estate) for obtaining a grant of probate.
The intention is to remove the current fixed fees of £155 for probate applications made by solicitors and £215 for applications made by individuals and to replace them with a sliding scale of fees as follows:
|Value of Estate||New Fee|
|Up to £5,000||£0|
|£5,000 – £50,000||£0|
|£50,001 – £300,000||£250|
|£300,001 – £500,000||£750|
|£500,001 – £1m||£2,500|
|£1m – £1.6m||£4,000|
|£1.6m – £2m||£5,000|
This is not a new proposal as the re-structuring of fees was widely discussed in 2017 and similar plans looked very likely to be implemented then before the call of the snap general election last year put paid to the idea. The Government decided that the significant increase in fees would not go down well with the voting public and scrapped the plan.
This was not a popular idea when it was first mooted, with lawyers and affiliate bodies alike strongly opposing the new fee system, suggesting in the main that the increase in fees was another form of stealth tax.
In Lucy Frazer’s release she says that “This new banded fee model represents a fair and more progressive way to pay for probate services compared to the current flat fee, and reflects our commitment to protecting access to justice by ensuring we have a properly funded and resourced courts system“. It is the last few words which have caused much consternation amongst practitioners and affected parties alike. It very much appears as though the Government are looking to introduce these new fees in order to subsidise other parts of the courts system. Lucy Frazer suggests as much when stating that “..such a courts system is simply not possible without proper funding….and all income raised will be spent on running the courts and tribunal service“. It seems unfair to target estates, especially as the Government’s own impact report shows that this area of the courts system self-funds. It will be a further cost to estates which may have already been financially impacted by care fees during the deceased’s lifetime and again by inheritance tax on death.
What impact will the fee hike have and who will it affect?
The implementation of these additional fees will affect estates whose value exceeds £50,000. A small number of estates will benefit by being eligible for the £0 fee (which is already available for estates under £5,000 in value but would apply to estates up to £50,000 under the proposed changes). However, the vast majority of estates will end up having to pay a greatly inflated fee. Lucy Frazer has suggested that 80% of estates will fall within the £300,001 – £500,000 bracket. This will mean that these estates will have to pay £750 which is a 349% increase on the current fee.
Whilst the direct financial impact on estates of the increased fees is the headline news, there are other impacts of introducing this new fee structure. The Institute of Legacy Management have said that that the increase in fees could cause charities to lose out on as much as £10m per year. Charities rely heavily on legacies left in peoples wills and the increased fees will be diverting much needed funds to the courts service. It has not been discussed by Lucy Frazer, but it would seem a lot fairer if the Government would consider introducing fee exemptions or reductions for estates in which charities (and other exempt beneficiaries, such as spouses) benefit. Not only would this seem fairer, it would also be consistent with our current tax laws.
There are currently a lot of unanswered questions concerning the practicalities that will face executors when administering an estate. These include – how will executors of asset rich but cash poor estates (such as those with agricultural assets or where the only asset of the estate is the property) fund the court fee?; will the executors be expected to obtain short term loans in order to pay the court fee?; will high street banks agree to release funds for the court fee prior to obtaining the grant of probate? These are all very practical questions to which there is currently not an answer. Lucy Frazer has said that a guidance document will be released prior to implementation, which will give executors several options to fund the fee. Whether this publication will provide answers to the questions raised above remains to be seen.
This is an unpopular proposal that has been met with strong resistance. Disappointingly, the Government do not intend to debate the implementation of these new fees and it is likely that they will be introduced as soon as April next year, at around the same time as Britain leaves the EU.
A real concern for professional practitioners is that this new ‘tax’ may tempt people into making ill-informed ‘tax planning’ decisions in an effort to avoid paying the new probate fee. This could have adverse tax consequences on those people’s estates, which could result in the estate being further financially penalised.
In a similar vein, executors of an estate may be discouraged from using a professional advisor in cases where it would be advisable to do so, as the costs of administering the estate have increased so significantly. A modest house in some parts of the country will ensure that an estate will fall into a category in which a vastly increased fee will be payable. In many cases, the sum of money being demanded as a court fee will be similar to the sum of money that has been set aside for legal costs to administer the estate.
The effects of these increased fees are likely to be very impactful and disappointingly, there are currently more questions than there are answers.
If, as expected, the fee increase is introduced early next year, it is likely that the fee increase will apply to applications received after the date of the fee rise (as opposed to applying to deaths after that date), therefore, to avoid the fee increase, applications must be received by the Probate Registry before the changes.
We therefore recommend that you act now in order to minimise the risk of paying a higher fee. If you are dealing with an estate and are concerned about the increases, we will be able to help you. Additionally, we can also advise you on ways to mitigate probate costs for your own estate as part of our Will and succession planning offering.