Probate court fees – a new death tax?

When a person dies, the Government not only levies inheritance tax based on the value of the deceased’s assets, but also a separate fee which is known as a “probate court fee”. This is payable to the probate court before the Personal Representatives (PRs) of the deceased can deal with the assets. The fee only applies in England and Wales, as Scotland and Northern Ireland have their own “probate courts”.

In recent years, for every estate worth over £5,000 the probate court fee has been a flat fee of £155 if a solicitor submits the papers. There has also been a 50p charge payable for every extra sealed copy of the court document (the grant) the executors need.

The Government has announced a dramatic increase in these fees from May 2017:

At the time of this note, the exact date in May that these new fees will begin to apply is not known, but 2 May will be the first working day. It is important to note that the fees will apply to applications submitted after the relevant date, regardless of when the death took place.

This fee has to be paid before the PRs can access the deceased’s funds. Upon death, banks etc. will freeze the deceased’s assets so that no one can access them until the grant has been paid. We have yet to find out the attitude of the banks as to whether they will allow access to the deceased’s bank accounts to meet the increased fee. If this is not allowed, it is likely that the estate will have to borrow the money, which may be difficult where there are few “liquid” assets. There may also be other negative financial implications as, in the past, the banks would often charge a fee, as well as interest, for allowing a PR’s loan.

The Government has not indicated that there will be any reliefs or remissions to the fees.

It is only a few years since the Government introduced the flat fee, arguing that the probate service was not meant to make a profit but merely break even. The Government has not explained what has changed other than stating that it needs more money for IT changes. Is the probate court subsidising the other courts?

For many, this increase will be a very significant tax at what is already a very stressful time.

When won’t the charge apply?

• If the asset is in a trust with separate trustees and the trust deed specifies who inherits the asset after the person’s death; or
• If the asset is owned jointly (e.g. a joint bank account) where it passes automatically to the surviving joint owner(s); or
• Assets registered in your name abroad may be accessible without the need for a grant in England and Wales.

The transfer, however, may trigger other taxes and charges.

Act with care

• Transferring assets to a trust or into joint names will have tax consequences that may not have otherwise arisen and may be payable immediately. You may also lose other tax reliefs (such as the Inheritance Tax Residence Nil Rate Band) and personal control of the asset.
• A joint account owner may well be able to draw out all the money from the account without consulting you.
• A “bare trust”/nominee arrangement may not work because the trustees will still need to know to whom to transfer the assets on to i.e. the “true” owner of the assets meaning that a grant of probate is needed.

If anyone suggests any of these steps to you, we recommend that you contact your solicitor for independent advice.

For more information

To find out more about probate, wills or estate planning please visit our website.

If you would like to further discuss the issues raised in the briefing please contact Alex Elphinston.