UK government confirms that probate fees in England and Wales will change to a banded system in May 2017.
The UK government has confirmed that probate fees in England and Wales will change to a banded system in May 2017. In essence the fees will increase with the value of the estate thereby replacing the current flat fees.
The cost of probate fees increased significantly in April 2014, when the cost of an application through a solicitor rose from £45 to £155, and the cost of a personal application increased to £215.
The proposal to link probate fees to the value of the estate was published in February 2016. However, it attracted overwhelming opposition and according to the Ministry of Justice’s consultation response, only 63 out of 829 respondents agreed with linking probate fees to the value of the estate, and 695 disagreed. Most responses to the consultation considered that the proposed fees were too high, and, because of this would effectively constitute a form of taxation.
It is said that no fee will be payable for estates worth less than £50,000, but the charges will increase rapidly beyond that threshold, rising to a maximum of £20,000 for estates above £2 million.
The full extent of the increase is shown in the table below:
|Value of estate (before inheritance tax)
|Up to 5,000
|5,001 – 50,000
|50,001 – 300,000
|300,001 – 500,000
|500,001 – 1,000,000
|1,000,001 – 1,600,000
|1,600,001 – 2,000,000
The Ministry of Justice’s response to the original consultation paper notes that it expects “these reforms to probate fees to deliver around £300 million in additional income per year – a substantial contribution to the running costs of HMCTS [Her Majesty’s Courts and Tribunals Service].” An earlier attempt to increase HMCTS funding by levying a flat non-means-tested fee on all trail defendants was withdrawn in late 2015 after a public outcry. The hike in probate fees is unlikely to provoke such a response, not least because 58% of estates fall within the £50,000 threshold and will thus face no fee.
The increased probate fees – effectively 1% on a £2m estate – are a de facto tax (which is not IHT relievable, to add insult to injury). Only 13 out of 813 respondents to the consultation agreed with the scale, but with more than a hint of the Kafkaesque, the response document put their minority views first. Hypothecating taxes (real or disguised) to specific areas of expenditure is one of the ways in which the government is heading in its search for extra income.
The triple lock on income tax rates, Class 1 NICs and VAT (see our earlier bulletin) together with a commitment to cut corporation tax have effectively limited the Chancellor’s room for manoeuvre: that quartet of taxes accounts for two thirds of the Exchequer’s total income. Of course, there is still scope to adjust these taxes, witness the attack on buy-to-let income and the annual allowance cuts, but major-revenue raising is difficult if the rates are unmovable.
Last year’s Budget saw Mr Osborne add 0.5% to Insurance Premium Tax (IPT) to help fund flood defence costs, following on from a 3.5% (non-earmarked) increase in July 2015. In November Mr Hammond added another unspecific 2% from 1 June 2017, worth about £850m a year, and safely outside the tax triple lock. IPT will thus have doubled in 19 months.
This time around there have been rumours of a 10% increase in the IHT rate (unlocked, remember) to help meet the cost of social scare. That would raise about £1.2bn a year. In practice the government has already played the social care hypothecated tax increase card a couple of times, firstly allowing to local authorities to raise council tax by 2% a year to cover rising care costs. Subsequently, the government decided to permit part of the precept (aka increase) to be brought forward, so that 3% increases became possible (ie almost certain) for 2017 and 2018. Passing the hypothecated buck to local authorities has the added advantage that the bigger bill does not arrive from central government.
The tax triple lock was a pre-election, pre-referendum pledge which now looks as foolish as many economists suggested when it was first mooted. However, politics means that Mr Hammond is unlikely to revoke his predecessor’s promise. Thus, on Wednesday look out for more hypothecated taxes. They also will not impress the economists who say that taxes and expenditure are often not in sync and it is better to leave matters to general taxation.
As tax year end approaches, there is still time to make use of your available reliefs and allowances.
This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.
As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.
It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.