Probate court fees and parking spaces – spot the difference!
As was pointed out many times in the consultation period, the rise in probate court fees is a wealth tax by any other name, deemed affordable at a vulnerable time, on death. It has been brought in as a fee, however, to avoid both the parliamentary scrutiny rightly required for tax and the PR fallout for politicians who do not want to be known for raising taxes.
I pay the same amount as all my neighbours for a parking permit on my road. That is the price of making sure I can find a space when coming home from shopping laden with bags. It pays for road signs, street markings and occasional enforcement officers. It is annoying to have to renew annually but it is not too much of a burden.
Probate court fees pay for having a Will formally recognised as valid, a necessary process before many assets can be realised. We all thought probate court fees operated like parking spaces – until now! They are about to rise by a 'huge' amount, to quote the Guardian.
It is only right that users of the court system pay for it. We all pay for it through taxes, but there are also specific 'user' fees for suing somebody, getting divorced or proving a Will. A few years ago it was recognised that probate court fees were too low at £50 per Will and needed to be raised to £155 for solicitor applications and £215 for personal applications in order to pay for the service. In the legal profession, we did our bit to keep court costs down. We even had to start providing two photocopies to reduce the burden to the tax payer of ink cartridges.
From May 2017 this will all change. From then on, the value of the estate will determine how much you pay. Perhaps it would have been fairer to charge on a 'pay by page' basis – except that the new avoidance strategy would have been too easy to dream up - use very small font in the Will. No expensive barrister needed to come up with this plan.
The fees start when the estate is worth £50,000 with a not unreasonable £300 per application. If the estate is worth over £500,000 (and when the house is brought into the equation, that is not difficult), the fee is a chunky £4,000, rising to a fee of £20,000 for an estate worth more than £2m.
It is a bit like parking permits, but different. Why should we not ask small but expensive BMW owners (the cars that is, not the owners) to pay a lot, and let off large but old camper vans, even if they use more space? But, so far, no-one at the Council has suggested that the bigger my car, or the more expensive my car, the more my parking space should cost me.
Where does Blake Morgan see the new fees hitting hardest?
- The asset rich and cash poor, who see themselves as stewards of their farm, say, for the next generation;
- Widows and widowers, accustomed to thinking that the law allows them to inherit everything from their spouse tax free.
It is not difficult to see real hardship, as well as distress and confusion, being caused to these groups. It is true that assets pass between spouses and civil partners tax-free – but then, this is not a tax, it is a fee, so bad luck! None of the exemptions will save you paying.
Which brings on a real question – how to pay?
This level of fee is not unlike having to pay the costs of a funeral all over again – or multiple funerals for the top level. Which do I prioritise? If I cannot sell shares or property and close bank accounts above a certain size without probate, where do I find the money to obtain probate? It is a chicken-and-egg situation. Not everyone has a spare few thousand in the bank after the cost of the funeral.
As ever, those accustomed to discussing matters with their lawyer will find a way. Not unlike in America, the secret is to die artificially poor. Tax avoidance rules do not of course apply because, again, this is not a tax – it is a fee. So you put everything you own into a trust, or you give it away to people you trust, but you continue to enjoy it. This does not work at all for saving tax or the cost of care, but it may just get around the probate court fees because, on paper, what you actually own personally is very little when you die.
There are no get out clauses…
Owning as much as possible jointly is another solution because while your share of jointly owned assets is taken into account for tax, it does not pass by your Will as a matter of law. So, again, the value of your estate on which fees are calculated, which will exclude all jointly owned property, will appear modest.
Unfortunately, you cannot shelter behind charity or spouse or business or farm exemptions because this is not a tax. The exemptions do not apply to the probate court fee. Even if I have £2m and leave all my estate by Will to charity, the £20,000 fee has to be paid by, yes, the charity. Charities usually do not pay tax – but then, at the risk of repetition, this is not a tax!
Overall, there is little but cold comfort to give. Those who are married or in civil partnerships, or in the asset rich, cash poor group, will likely be hardest hit. For either category, it would be sensible to have a further discussion about your Will and succession planning. And possibly foregoing the new car to keep cash in reserve, because from May, even if the traffic wardens do not get you, the probate registry will!