Probate court fees set to increase to as much as £20,000 per application
Recent government consultations have confirmed that probate court fees will be imminently restructured to incorporate a 'sliding scale' – lower value estates may have no fee whatsoever, whilst those in excess of £2m may suffer a £20,000 fee.
A grant of representation ('probate') is a court order legally constituting somebody as personal representative of an estate – that is, giving them authority to deal with the deceased party's affairs. It is commonly a vital element. For instance, a grant is usually needed to sell 'real' property (homes/buildings). Currently, when submitting an application for a grant the fees are universal: £155 for an application via a solicitor, or £215 for a personal application (zero for estates below £5,000 total). These fees apply whether the estate in question is £10,000, or £10m. However, this is set to change.
How does the sliding scale work?
It's based on the value of the estate before inheritance tax (if any) is deducted. The proposal is as follows:
|Up to £50,000||No fee|
|£50,000 - £300,000||
|£300,000 - £500,000||
|£500,000 - £1m||
|£1m - £1.6m||£8,000|
|£1.6m - £2m||£12,000|
So if your estate is £2m or more, your personal representatives may have to get hold of an additional £20,000 up front to actually get the grant and progress the estate administration.
Remember that the current threshold before an estate becomes liable for inheritance tax is £325,000. An estate may need to pay 40% tax on anything over this amount.
When will this happen?
No exact date has been provided, but MoJ confirm that the Government is "bringing forward the necessary statutory instrument for the plans" in May 2017. More news to follow after the Government's green/white papers are published in May.
What are the implications?
Most pressingly, personal representatives ('executors') of higher-value estates may need to get their hands on up to £20,000 before applying for probate. This may not be readily available to them, if they do not want to (or more likely are not able to!) dip into their own pockets, and reimburse themselves from the estate later. To illustrate:
Ethel dies leaving modest cash and a large home owned outright that was inherited from her parents decades ago. It needs modernising, but is in very central London and is valued at £2m - £2.3m at the date of her death. Her son, Bruce is named as executor/beneficiary in her will. Bruce will need probate to sell the house, but the new rules mean that he will need to pay £20,000 in court fees to get the grant. He has very little spare cash and the few hundred pounds in his mother's current account nowhere near covers the fee. What can Bruce do?
The Government's response to the consultation suggests several options, including:
- Access the estate's cash pre-grant where possible. This is possible (some banks do release funds c£20,000 without a grant), but not an option here;
- A loan. Perhaps not the most desirable option. Bruce might not have the best credit rating;
- Cash invested in state-guaranteed securities (e.g. NS&I). There is a parallel MoJ investigation into the possibility of this.
There are other possibilities that could one day be a reality – for instance, a funeral plan-style product with a built in element for providing early release of probate fees.
Bottom line: the new rules mean that people like Bruce may find themselves in an unexpected situation when it comes to applying for probate. Bear in mind as well that here his mum's estate may be liable for a sizeable inheritance tax bill as well!
Whilst smaller, non-taxable estates (<£50,000) will save up to £215 court fees, larger estates could suffer the full brunt of the £20,000 upper limit. Even estates that do not even incur an IHT liability could be hit with £4,000 additional court fees if a grant is required. If nothing else this is something that all should be alive to going forward.
What court fee will be applicable depends on the net estate for IHT purposes, a figure which will need to be calculated before probate is applied for.
Blake Morgan can offer comprehensive and sensitive advice on this and many other probate issues, please contact the Succession and Tax team for further information.